Bellwether retailer Marks & Spencer
Britain's biggest clothing retailer, which also sells homewares and upmarket foods, said Tuesday it was making additional cost savings to offset a fall in profit margins due to the discounting.
Sales at British stores open over a year rose 0.5 percent excluding VAT sales tax in the 13 weeks to December 31, its financial third quarter.
That included a 1.8 percent fall in general merchandise sales and a 3 percent rise in food sales, against forecasts for a fall of 1.5 percent and a rise of 1.5 percent respectively.
In its second quarter, Marks & Spencer (M&S) reported a 0.7 percent fall in underlying British sales.
Britain's retailers are mostly struggling as disposable incomes are squeezed by rising prices, muted wages growth and austerity measures, and as shoppers worry about a weak housing market, rising unemployment and the euro zone debt crisis.
The British Retail Consortium reported a surprise 2.2 percent rise in December retail sales Tuesday, but said weak business a year earlier flattered the figures and warned discounting could hit stores' profits.
Clothing retailers have been at the forefront of that price cutting as mild weather combined with weak demand to leave them with piles of unsold winter garments.
In light of the ongoing macro-economic uncertainty, we expect trading conditions to remain challenging, said M&S, which serves about 21 million Britons a week from around 700 stores and has over 350 mainly franchised outlets overseas.
Shares in the 128-year-old group have lagged the STOXX Europe 600 index <.SXRP> index by 11 percent over the past year. They closed at 308.5 pence Monday, valuing the business at about 4.9 billion pounds.
(Reporting by Mark Potter and James Davey; Editing by Erica Billingham and Hans-Juergen Peters)