Fashion retailer Next endures tough quarter
UK fashion retailer Next has endured a tough quarter – and its fortunes are unlikely to take a turn for the better anytime soon.
Next had anticipated a difficult third quarter, and its latest set of results have proved that the retailer’s caution was well founded.
August and September were particularly tough, and a marginal sales uplift of 1.3 per cent in October was nowhere near enough to rescue the quarter. Full price sales declined 7 per cent in August following a strong end-of-season sale in July, while September saw full price sales declines of 5.1 per cent as the retailer was up against its best trading month last year.
Markdown sales continue to outpace full price sales as they grew 0.4 per cent in the year to date, while full price sales declined 1.5 per cent – evidence of Next’s increasing struggle to convince shoppers of the value of its full price proposition, and the increasing propensity for midmarket shoppers to delay spend until sale season kicks in.
Next Directory sales, normally the shining light in the company’s results, failed to provide any relief and remained flat. The retailer’s online proposition and fulfilment options are robust, so most blame must be laid at the feet of faltering consumer confidence among midmarket shoppers, and a seminal shift away from spending on clothing and footwear among this demographic– something which Next has been warning of since last year.
Next has narrowed full price sales guidance to -1.75 per cent to +1.25 per cent from the previous guidance of -2.5 per cent to +2.5 per cent, marginally lowering the mid-point sales range. Full year profit guidance remains intact, primarily due to Next’s strategic control on costs. With disposable incomes likely to get tighter over 2017 as price rises kick in and consumers have to spend more on basics such as food & grocery, fortunes are unlikely to take a turn for the better anytime soon.
Winners in the clothing market this year have been retailers such as Asos, Zara and Ted Baker, who have remained front of mind for shoppers because of their distinct propositions, responsive product drops and agile business models – all areas that Next lags behind in. Bearing this in mind, Next must maintain momentum in its plans to make fundamental changes to its buying and phasing patterns, while improving design and quality if it is to weather the storms ahead.
- Nivindya Sharma is a senior analyst with Verdict Retail.