Wednesday 18 October 2017

Next shares drop 7.2pc as it falls out of fashion

Consumers are shifting to online retailers and leisure-focused clothes, hitting Next which is feeling the effects of Brexit
Consumers are shifting to online retailers and leisure-focused clothes, hitting Next which is feeling the effects of Brexit

Sam Chambers

Too many trendy fashions and too few basic garments have proved costly for Next Plc.

Sales declines at the UK clothing retailer worsened in the first quarter of the financial year, causing it to trim its profit forecast at an early stage and sending the shares tumbling.

By its own admission, Next placed too much emphasis on getting the latest fashion lines into stores quickly, leading to staples such as easy-to-wear work blouses being squeezed out of its ranges.

"Next has been finding it challenging managing the balance between having faster decision-making in the business and enough commercial, wearable product," Richard Chamberlain, an analyst at RBC Europe, said in a note.

The retailer's push towards fast fashion was designed to enable it to better compete with the likes of Inditex's Zara and nimble online-only rivals that constantly update their product ranges.

The misjudgement comes at an unforgiving time for UK fashion retailers, who are contending with a shift in consumer spending towards leisure experiences, as well as an increase in purchasing costs caused by the Brexit-induced drop in sterling.

CEO Simon Wolfson said yesterday he doesn't expect the gaps in Next's product assortment to be fully fixed until September.

As a result second-quarter sales are likely to decline at a similar pace to the first quarter, he said, though the CEO expects an improvement in the second half of the year.

Next shares fell as much as 7.2pc in London.

The latest fall echoed a 14pc drop on January 4 when the company forecast another tough year after a disappointing Christmas season.

A shift in consumer spending patterns toward leisure experiences as well as stagnating disposable incomes will continue to weigh on clothing sellers generally, Mr Wolfson said.

The comments deepened investor concern over the prospects of the rest of the industry, sending shares of Marks & Spencer Group down 2.4pc.

Next forecast full-year that its pretax profit will be between £680m (€802m) and £740m, reducing the top end of that range from £780m. (Bloomberg)

Irish Independent

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