1. Features
January 4, 2017updated 06 Jan 2017 9:46am

Where next from here? High street retailers look to be trapped in a downward spiral

By Billy

There was blood on the high street this morning after Next — the first retailer ahead of a flurry to divulge their Christmas trading performance — warned this coming year was not going to be good.

Rising inflation is expected to be a big drag for the year as it erodes earnings growth and limits consumer spending. Following the plunge in the pound after last June’s Brexit vote, Next chief executive Simon Wolfson expects prices to rise by as much as five percent.

The coming apprenticeship levy, a (smaller than expected) rise in the living wage, a revaluation in business rates, and higher energy taxes are also going to pile on the pressure.

The retailer — seen as a bellwether for the wider high street — forecast full-year profits would be at the lower end of guidance, coming in at around £792m ($972m), on previous forecasts of £785m-£825m.

Shares in Next were heavily sold off at the London market open, falling over 10 percent, and triggered a wave of analyst warnings on the group.

GlobalData retail analyst Emily Stella warned Next was failing to appeal to its core market.

“These 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.”

It wasn’t just Next that the dire warnings hit, with the likes of rivals Marks & Spencer, Primark owner AB Foods, and Debenhams, all of which dropping by around five percent. These retailers will all report Christmas trading numbers in the next week.

Wolfson’s comments that clothing retail in general had found it tough over the Christmas period didn’t help, as he blamed “a lot of distressed discounting in the run-up to Christmas” for a sector wide poor performance.

Is it all bad news? Yes, but some news is less bad than the rest

In the 54 days up to Christmas eve Next’s in store sales fell by 3.5 percent, while its online Next Directory sales rose by 5.1 percent, up from a two percent rise the year before.

Next Directory is considered to be one of the best online propositions in the market, though Next is now finding its competitors are catching up to it. The likes of ASOS and Boohoo are seeing their online sales grow at a more rapid rate than any of the existing high street fashion retailers.

There is clearly room to grow online, but has Next missed the boat?