WOOLWORTHS, the general retailer, is to cut £25 million in costs to meet annual profits forecasts because it has been forced to give away expected margin gains.

The company is deferring its annual staff pay award, usually given in August, until January, freezing recruitment at head office and getting rid of deputy managers at larger stores after admitting that it would not be able to achieve an expected 0.5 to 0.6 percentage point increase in margins in the six months to the end of January.

The company has also cut back the number of hours worked by retail staff between 3 and 4 per cent to trim back costs in line with falling sales trends.

Trevor Bish-Jones, the chief executive, said that prices of some merchandise would fall by as much as 10 per cent as Woolworths tried to compete with supermarkets. He said: “We think it is going to be a tough retail environment over the key Christmas period and we are not looking for sales or margin growth. We are looking for profitability by controlling costs.”

Shares in Woolworths rose ½p to 34¼p as first-half profits came in slightly below expectations and underlying sales showed improvement. Analysts held their forecasts for the year, despite a £3 million increase in losses from continuing operations to £35.9 million in the six months to July 30, while group sales from continuing operations fell 2.9 per cent to £1.04 billion, partly as a result of the closure of several Big W stores.

In the eight weeks since July 16, the company said that underlying sales had fallen 1.7 per cent. In the 26 weeks to July 30, underlying sales were down 4 per cent. Mr Bish-Jones attributed the improved performance to strong sales of toys and also a new strategy of offering customers a chance to buy goods from its internet site in Woolworths stores.

He said that all Woolworths’ tills now were able to access the site and offer customers delivery in store or at home This “multichannel” strategy is to form a big part of Christmas advertising and special pick-up points are to be set up in larger stores after trials in stores over summer showed that internet-linked purchases could contribute 1 or 2 per cent of sales. Mr Bish-Jones said “it’s all still to play for” because 40 per cent of the company’s sales were achieved in the ten-week Christmas period.

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