Holmes too late off the mark

IF ever there was a period when Marks & Spencer should have been doing well, it was in the final quarter of last year. The High Street was on fire with rivals Next Group, Bhs and Arcadia doing a roaring trade and credit card spending increasing at the fastest rate in history.

Instead, M&S was sinking deeper into the mire. The revolution at the nation's best-loved retailer under Luc Vandevelde and Roger Holmes appears to have been more smoke and mirrors than reality.

What is most unsettling is that these two experienced retailers didn't see the sales downturn coming. So, in effect, the sales outturn - 5.2% down for non-foods and 1.4% for foods - is a disguised profits warning with brokers immediately slashing the outlook for the full-year results.

Holmes has belatedly started to act. Jobs are being axed at their headquarters, which is overstaffed, and Vittorio Radice, late of Selfridges, is being put in charge of the fashion offering. But the worrying thing is that, aside from pockets of success such as Per Una, M&S has come so unstuck on its core womenswear business where sales and market share are shrinking. Once lost, market share is hard to reclaim.

What in particular is surprising about this is that it did alight on the right formula for menswear under the direction of Maurice Helfgott. Here it segmented the product into brands such as Italian, Blue Harbour and the Sp label and sales took off.

It was a simple but effective approach. One wonders why this policy was not adapted for the core women's clothing operation.

The worry is that too much management time has been spent fiddling with financial services and Lifestores - peripheral to the core businesses - while womenswear, most notably knitwear and classics, has not sweated at all. Holmes will have to wait for the autumn before any payoff there can be seen.

There is certain to be institutional grumbling, particularly if profits now come in way below expectations. Analysts are already highly critical. Both chairman Vandevelde and Holmes must recognise that the City loses patience quickly with underperformance.

No one can be pleased with a share price at a 12-month low in the current climate on the High Street. Unless the senior team can provide early evidence that they have found the magic pill for recovery, then change will rightly be demanded.

Inflation alert

THE biggest economic question for 2004 is when will American interest rates start to rise? The assumption has been that nothing will happen between now and November since Alan Greenspan, the chairman of the Federal Reserve and a Republican, will not want to scare the horses ahead of what will be a closely-fought American election.

But the bond markets are starting to catch a whiff of something else. A sharp and unexpected rise in inflation in March saw US consumer prices rise 0.5%, the biggest increase since November 2001.

Just to add to the pressure for higher US rates, an OECD report on the American economy noted that they will have to go up unless Washington takes steps to trim the ballooning federal budget deficit. It called for greater budget discipline and spending and revenue reforms, none of which will happen before the election.

Despite this cloud on the horizon, President Bush will at least be able to claim some successes. The OECD notes that the US looks set for trend growth of 4% over the next few years.

On the foreign exchanges the weakened dollar, together with supercharged growth in the Pacific, is delivering better trade figures, with the trade shortfall dropping 3% to $42.1bn in February. Exports climbed by 4% - the biggest jump since October 1996. The trade gap with China is at last narrowing, which also will provide relief at the White House.

But it is rising US inflation that could be a factor when the Bank of England meets early next month. Britain will not be immune to the rising trend in energy prices.

ITV games

SPECULATION that Sir Peter Burt, chairman of ITV, has been chatting up former BBC directorgeneral Greg Dyke is fascinating. The two men reportedly held a two-and-a-half hour meeting 10 days ago.

But it is unlikely to have current ITV boss Charles Allen breaking out in nervous rashes just yet. Dyke, after all, is working on an excoriating book on the Blair government.

This would not make him flavour of the month at Ofcom and with the government when it comes to negotiating down the large franchise fees which ITV pays for having the privilege of being a commercial broadcaster.