Prudent M&S puts market research first

Marks & Spencer has initiated a major market-research programme to find out how tax rises and public spending cuts will affect customers.

The retailer has already imposed a highly prudent approach to buying autumn clothing amid concerns of a downturn.

The company's fears could emerge at its shareholders' meeting this week. Its chief executive, Marc Bolland, said: "All the external indicators say people for the next year will have concerns on their consumer spend. Therefore, we are very cautious." But Mr Bolland, who took over the top job in May, is no longer prepared to rely on outside indicators and has set-up a widescale research initiative inside M&S to report on consumer reactions to the rise in VAT to 20 per cent, and on other measures in last month's Budget.

"We've started quite extensive market research to make sure we are close to what the consumer thinks," he said. "We have started a very strong consumer barometer ourselves, which we started the month prior to the Budget and which we are conducting every month, which will indicate to us the measures that we will have to take."

The VAT rise, which takes effect from January, will increase inflation. J Sainsbury, which also faces its shareholders on Wednesday, believes the tax rise will cause customers to change their shopping patterns, even though most goods sold by the supermarket group are VAT-free.

Sainsbury's chief executive, Justin King, said: "A VAT change will be felt like inflation. Across total retail, that is going to be something north of 1 per cent." He estimates his group's prices will rise by 0.7 to 0.8 per cent. "If inflation comes back in, consumers will modify what they buy to dial that inflation out of their shopping baskets."

Marks & Spencer believes it can defy an investor revolt at Wednesday's meeting over plans to pay Mr Bolland up to £15m, but the retailer could face difficult questions about weakening trading.

Many retailers had poor sales in June, but Mr Bolland believes it is too early to see a trend. "You've got the weather impact, you've got the World Cup impact, you've got the Budget impact," he said. "That is too short for us and there's been only a couple of weeks to report back on whether there's been any impact from the Budget and from the other measures coming through. It's too early to give any indications."

Although the World Cup increased sales of beer and televisions, M&S is concerned about the VAT rise and economic slowdown. "We will not see the impact immediately, but in time we'll get more clarity," he says.

But despite two surveys from M&S's new consumer barometer, Mr Bolland said: "We do not believe that the first results are the only ones to drive on. We want a bit more research done."

However, the group is already planning for slowing sales in the autumn, especially on clothing lines. "We have a prudent approach to stock management and our buying process," he said. "We're much more cautious in terms of our buying now."