The latest results from fashion chain Next highlight the challenges facing UK high street retailers.
Next’s first half figures reflect the negative impact of unseasonal weather and the difficulty in convincing shoppers to buy at full price, especially in clothing, despite the retailer’s well-priced and quality product offer. Next’s performance has effectively been saved by robust clearance rates during its major sale, which it entered into with significantly more stock than last year (up 30 per cent). As a result, Next Retail operating profit decreased by 16.8 per cent to £133.9 million, though this decline was mitigated by profit growth from its Directory arm.
Next’s strategy is focused on ensuring it is well placed to achieve growth when trading conditions improve, however as Verdict Retail expects consumer spending to remain restricted for the next few years, Next must ensure it does not get ahead of itself. It plans to have a more responsive buying pattern, as well as investing in improving design and quality, helping to justify any potential price increases next year.
Directory is also a focus, with attention on customer acquisition, driving spend of existing customers, increasing personalisation and improving the delivery proposition. Next’s click & collect service is highly competitive, unsurprising given the investment it has made. However, planned investment in other delivery options, including the launch of a PUDO service and two-hour time slots for home delivery will offer shoppers more choice and convenience, on par with the likes of John Lewis and House of Fraser.
Next remains characteristically cautious as it prepares for a volatile second half, with the third quarter expected to be the most telling of the year, due to tough comparatives – and a mild winter highly detrimental.
The retailer expects cost prices to rise by 5 per cent on like-for-like products next year as hedging contracts run out, but is prepared to mitigate most of this by increasing supply from new bases such as Bangladesh, Cambodia and Burma.
Next’s considerable supply chain capacity means it is in a better position than its smaller rivals, but fundamental changes to buying and phasing will be essential to protect market share in light of consumers’ changing shopping patterns.
- Kate Ormrod is a senior analyst with Verdict Retail.