Next should shut stores as High Street sales slump, says City

Business reporter(wp/es):

Fashion chain Next faced calls to shut more stores quickly on Wednesday as it admitted its High Street arm was dragging the business back.

The retailer admitted that traditional sales on the High Street fell by 8% in the third-quarter to October 31, giving a shock to investors. Next shares were down 200p, or almost 4%, to 5106p despite holding its profit guidance.

“This has been the trend for some time now and as ever raises the question about when management seeks to rationalise its store estate in recognition of the shift in where revenues and profits are being generated,” added Neil Wilson, an analyst at Markets.com.

Next has seen rivals including Marks & Spencer and Debenhams shutter scores of shops as they face tough online competition and weak consumer spending. 

Chief executive Simon, Lord Wolfson said in September he was in talks with landlords to renew many of the leases expiring over the next few years and the new terms were “attractive enough to keep stores open”. He has previously argued that online and stores can be complementary, as shoppers can use stores to collect and return shopping. 

Next, which has more than 500 stores in Britain, has closed at least 22 this year and others are earmarked for closure. 

“A weak outturn might increase pressure on management to consider more radical solutions to the structural challenges facing its physical shops,” said AJ Bell’s Russ Mould. 

However, though stores accounted for two-thirds of Next’s business a decade ago, they now make up less than half of its total revenues. 

The online business has continued to offset the High Street gloom, growing by 12.7%, albeit at a slower pace when compared with 14.8% for the year. 

The City had also expected a 3% growth in full-price own-brand sales, but the outcome was “a disappointing” 1.3%, said retail analyst Nick Bubb. 

Its finance arm, which allows customers to pay for their shopping on credit, is expected to contribute 17% of Next’s profit this year. But analysts fear this further exposes Next to a potential consumer downturn.

Marks & Spencer revealed in May that it would close more than 100 stores by 2022, as part of a shake-up of the business to try to make it more profitable, and Debenhams said last week that it will shut up to 50 stores over the next five years, after it previously said it planned to close only 10.