Next warns of toughest year since 2008Comments Off on Next warns of toughest year since 2008
Next sent shivers through the High Street today as it warned fashion retailers they could be facing a consumer spending slowdown.
The 540-strong chain’s boss, Lord Wolfson pointed to slowing wage growth and “uncertainty in the global economy” and cautioned that “the year ahead may well be the toughest we have faced since 2008”.
The news spooked investors and Next shares suffered their biggest one-day drop in seven years falling as much as 9%, or 580p, to 6080p.
There were knock-on effects for main rival Marks & Spencer too, which sank 12.9p to 399.9p, while Debenhams slid 1.7p to 73.05p.
“We’re not economists but our instinct is that we are looking at some sort of consumer slowdown,” said Wolfson. “The outlook for consumer spending does not look as benign as it was at this time last year, when all indicators — output and growth in real earnings — began to tail off as the year progressed.”
The Conservative peer said clothing was likely to be the hardest hit, as Britons splash out more on eating out, travel and leisure — the areas that suffered most during the credit crunch.
Next cut its sales forecast for full price goods for the 2016-17 year to a range of 1% to 4% from earlier guidance of 1%-6% growth and said retail margins would be squeezed. The forecast cast a shadow over the retailer’s full-year results, including 3% growth in sales and a 5% rise in underlying pretax to £821.3 million for the year ending in January. That figure was ahead of an earlier prediction for £817 million and came despite a poor Christmas and a slowdown at Next Directory — once a key driver of growth. Sales at the catalogue business were up by 7.7%, versus 12% growth last year, as more customers moved towards online shopping and competitors caught up with it on delivery and warehousing.
“So much of the Next investment story has been based around above average growth generated by its Directory business, so the retailer’s admission that it is struggling to keep an edge over the competition in this business has spooked investors,” Hargreaves Lansdown’s Charlie Huggins said.
Next outlined plans to improve, including updating its mobile apps, increasing spend on online marketing and creating more narrow delivery windows. It insisted it had no plans to abandon the printed brochures.
Next acknowledged it had work to do to prepare for the year ahead.
“In many ways we have more to do than ever before with complex challenges to our working practices across product, marketing and systems,” Wolfson said. “It may well feel like walking up the down escalator, with a great deal of effort required to stand still.”
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