Blog: Leonie BarrieDiscounting not on the cards at Next

Leonie Barrie | 27 March 2009

Unlike most of its competitors, UK fashion retailer Next refused to cut prices in the run-up to Christmas – with the result that shoppers had to wait until Boxing Day before they could snap up its post-holiday bargains. And wait they did, with chilly 5am queues a familiar sight on many high streets outside its stores. It was a brave move considering rivals like Marks & Spencer and Debenhams started their seasonal sales way back in November.

But it seems to have paid off. Even though the UK’s second-largest clothing retailer posted a 14% drop in full year profit and a 1.7% slide in sales, it still refuses to discount its goods to attract customers.

Chief executive Simon Wolfson said yesterday that Next’s “long standing practice of providing customers with certainty over pricing” might have reduced its sales potential, but lower inventory levels also “allowed us to maintain our margins and significantly reduce markdown costs year on year.”

What he didn’t say, of course, was that the practice is disruptive and also undermines a brand’s credibility, with consumers quick to realise they don’t have to pay full ticket prices for long. As if to prove the point, M&S started its mid-season sale this week as it kicks off its Easter price war to shift spring and summer merchandise.

Wolfson added: “Next intends to continue trading at full price at all times, other than at our traditional end of season and mid-season Sales.

“Any increase in promotional activity must logically involve either the surrender of margin, or the artificial raising of initial prices in order to offer them as a "bargain" at a later date. Whilst some have made a success of this strategy, we do not believe that this would be right for the Next brand.”

His stance has been widely welcomed, especially as the company said it expected first-half like-for-like sales to fall between 6% and 9% at its retail stores – and that it expects to meet profit expectations.

One possible fly in the ointment, though, is the weak pound, which is eroding buying power and could force prices to rise by 3% to 5% in the autumn, as well as weighing on margins. A pair of GBP20 jeans will go up by around GBP0.50 Wolfson said.

But Next also believes it has this covered by bucking the trend for safe and conservative looks by taking fashion risks instead, and that it will not sacrifice quality and design content in the pursuit of price.

Will this work? Nobody knows, of course, but by choosing not to devalue its ranges the retailer believes its long term integrity will be intact and that this will provide a solid platform for growth when the economy recovers.

 

UK: Next faces double whammy as FY profit falls 14%


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