Land of Leather's four directors and some senior managers have agreed to defer taking part of their salaries during the current difficult economic climate after the furniture retailer's pre-tax profits plunged by 88 per cent.

The furniture group said the move would save a quarter of its salary bill this year,understood to be about £200,000, as it looks to conserve cash and reduce operating costs.

The group called the past year "one of the most difficult for the retail furniture industry in many years" as the impact of the credit crunch on the housing market and ebbing consumer confidence meant that people were not spending on "big-ticket" discretionary items, such as new sofas.

The retailer, whose like-for-like sales are down 29 per cent, said that it expected the rest of 2008 and 2009 to continue to be challenging.

The struggling sofa chain reported pre-tax profit of £2.3 million for the year to August 3 compared with £18.5 million last year, while total sales fell 3 per cent to £232 million. The group’s gross profit margin fell 2.5 percentage points to 42.1 per cent.

The retailer, which has issued three profit warnings since Christmas, has suspended its new store opening programme and stopped putting new mezzanine floors into existing stores in a bid to conserve cash. It also confirmed that it would not pay a final dividend and did not expect to resume dividend payments for the current year, which runs to August 2, 2009.

Its employee numbers have fallen by about 200 to 861, following the closure of two warehouses and a redundancy programme.

Earlier this year Land of Leather was forced to make a share sale underwritten by Investec and struggling Icelandic bank Kaupthing to raise £13.5 million to keep trading.

Roger Matthews, chairman of the group, said the Boxing Day sale trading period would be very important for the business. He said: "The actions taken by the management in reducing costs and conserving cash means the business is better placed to withstand the difficult market conditions."

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