UPDATE 3-Marks & Spencer's Christmas ruined by online delivery problems

* General merchandise sales down 5.8 pct in third quarter

* CEO blames "unsatisfactory" performance in onlinedistribution

* Shares fall more than four pct (Adds CEO comments, analyst reaction)

By Sarah Young and Paul Sandle

LONDON, Jan 8 (Reuters) - Delivery problems at its onlinebusiness meant Marks & Spencer fell well short ofChristmas sales forecasts, raising fresh questions about ChiefExecutive Marc Bolland's turnaround strategy for Britain'sbiggest clothing retailer.

The 131-year-old company, a mainstay of Britain's shoppingstreets, said on Thursday sales of general merchandise, whichincludes clothing, gifts and homewares, fell 5.8 percent in the13 weeks to Dec. 27.

That was the 14th consecutive quarterly decline and wellbelow the 3 percent drop expected by analysts. It was also aworse performance than arch-rivals Next and John Lewis.

"Once Britain's greatest retailer, M&S is fast becoming analso-ran," said John Ibbotson, director of retail consultantsRetail Vision.

"The quality, price and website of its clothing arm aresimply not good enough compared to the ever buoyant Next."

At 1220 GMT, M&S shares were down 4.7 percent at 441.5pence, the biggest drop on the UK's FTSE-100 index andwiping out some of the 10 percent gain over the last 13 weeks.

Bolland, poached from supermarket group Morrisons in2010 to turn around M&S's general merchandise business, calledthe quarter and the distribution problems "disappointing".

He declined to set any target for restoring sales growth in the general merchandise, despite saying that weather anddistribution issues were the reason for most of the drop.

Warm autumn weather caused about 3.5 percent of the decline,as fashion retailers suffered in October and November.

Problems at M&S's new distribution centre at CastleDonnington in central England, coming after it had fixed issueswith its website, hit sales by another 1-1.5 percent.

M&S.com sales fell 5.9 percent in the quarter. It was unableto cope with a surge of orders around a "Black Friday"promotion, and had to cancel next-day deliveries.

WOMENSWEAR CHALLENGE

Bolland's biggest challenge has been making the company'swomenswear more appealing to its core female customers. Changeshe has made have won positive reviews in the fashion press, butare yet to translate into a sustainable improvement in sales.

He told reporters that womenswear was the best performingcategory in general merchandise.

Bolland has been trying to wean M&S off driving sales bydiscounting in stores, aiming to improve margins and preserveprofit even as sales seep away to rivals, like low-priced,fast-turnover retailer Primark.

"We've made a trade off...our discounting was lower overDecember than last year," he told reporters.

"We have been very clear on our priorities for the year whenwe said that the improvements of gross margins for the businesswas a strong priority."

Analysts said this, as well as a reduction in the expectedincrease in operating costs, would probably keep full-yearprofit forecasts unchanged at around 640-650 million pounds.

Espirito Santo analyst Tony Shiret said if M&S had postedsuch a negative sales figure a few years ago, "the wheels wouldhave completely fallen off in terms of profit".

"They're in decent clean, shape going forward," Shiret said."There are uncertainties, but the bottom line is they need todeliver some sales growth and when will that start to happen."

In its food business, which contributes over half of groupsales, M&S said a 0.1 percent rise in like-for-like salesoutperformed the wider grocery market.

Tesco, Britain's biggest supermarket group, saidits UK sales over the six weeks including Christmas fell asmaller-than-expected 0.5 percent.

(Editing by Mark Potter/Keith Weir)