Next warns on profits as shift to online accelerates, says GlobalData

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Following today’s release of Next figures for the 2018 Christmas trading period, Sofie Willmott, senior retail analyst at GlobalData, a leading data and analytics company, comments: ‘‘Although positive full price sales at Next over the vital Christmas period may ease worries about the precarious state of UK retail, changing shopping habits as spend shifts further online has proved costly for the business, forcing the retailer to announce a minor profit warning this morning. Profit before tax for FY2018/19 is now expected to fall 0.4% below last year to £723m versus the brand’s previous view of £727m, with the outlook for FY2019/20 looking bleak with PBT forecast down 1.1% to £715m, even though full price sales are forecast to lift 1.7%.

“Like other clothing specialists Primark, ASOS and Bonmarche, Next had a terrible November with full price sales slumping into heavily negative territory for most weeks as shoppers held off spending as press coverage of Brexit discussions and ongoing economic uncertainty, ramped up. Much improved full price sales from mid-December enabled the retailer to recover its festive performance, demonstrating how cash-strapped consumers left it later to buy gifts this year, potentially waiting for the early December pay day to fund their Christmas shopping.

“Over the Christmas period, polarisation across online and physical retail has become even more evident with stores suffering despite Next’s efforts to encourage cross-channel shopping, for example by trialling one hour click & collect in selected branches. Given Next’s maturity as an online player, its acceleration year-on-year in online sales is an accolade and demonstrates how its strategy online is paying off with a wider array of relevant brands supporting its own range and its Next Unlimited delivery saver scheme driving loyalty in a competitive market. However the retailer’s strong online proposition is now starting to show up its more limited offer in stores and Next must consider how it can stem the flow of rapidly declining physical sales to protect profits.”