Fashion chain Next faces crossroads

Fashion chain Next needs to carefully rethink who its customers are and how best to attract them to avoid falling into the same trap as M&S, says a retail analyst.

The UK-based retailer has released its fourth quarter results for 2016, described by Emily Stella, analyst with Verdict Retail, as “poor” against a weak comparative.

“The retailer admits it expected more from its Christmas sales. Next’s underwhelming performance was not isolated to the fourth quarter: 2016 has been a difficult year for the retailer, with full price sales for the year to date down 1.1 per cent on last year.”

The company said it expected profits to fall in its 2017-18 financial year by between 2 per cent and 14 per cent due to “tougher times” ahead. A 0.4 per cent quarterly increase in total sales was achieved purely through discounting, which means narrower margins. Price rises, already flagged, may reduce revenue in the year ahead by a further 0.5 per cent.

“Next has long been a retail star, seemingly unable to do wrong,” observed Stella. “However, the retailer acknowledges that 2017 could be a challenging year as consumers continue to restrict spending and a devalued pound forces price rises.”

She said the recent results may mark the start of a difficult period for the retailer.

“As it stands, Next’s current shoppers aren’t buying into its proposition – perhaps an indication that Next is failing to identify with its target market. To avoid falling into the same trap as M&S, Next will need to carefully rethink who its customer is and how to best attract them.”

Next’s share price fell by 14 per cent after its gloomy projections.