Next Feels the Squeeze

Once the darling of the ’80s retail design and branding revolution, Next is beginning to feel its age. Trailing in the wake of a resurgent Marks & Spencer, and under threat from Primark, will its new discount stores and international expansion plans be enough to halt the decline? By Ian McCawley

Simon Wolfson, the fresh-faced chief executive of retailer Next who is likened by industry commentators to teenage sorcerer Harry Potter, is delving into his bag of tricks again to keep the wolves from the company’s door.

A resurgent Marks & Spencer (M&S) continues to cast a spell on the UK fashion market with improved collections and glamorous marketing campaigns, while other rivals like New Look are also sewing up shoppers by the busload.

By contrast, first-half results at Next’s high street division disappointed analysts when they were announced last week. Profits slumped nearly 8% to £111.1m for the period, with underlying sales dropping by 7.5%.

However, Next Directory earnings rocketed by 44%, and overall company profits climbed by 3.6% to £178.9m.

Next’s high street struggles reflect a wider malaise among middle-market fashion players. Last week, French Connection posted its first loss in 14 years. It announced pre-tax losses of £3.6m for the six months to the end of July, compared with profits of £5.1m in the same period last year.

Others Suffering Too

French Connection chairman Stephen Marks was forced to make a statement denying he is to sell his 42% interest. Icelandic investment group Baugur, which already owns several UK-based retailers, including middle-market fashion player Mosaic, has been busy building its stake. Customers have grown tired of the famous “FCUK” slogan, dropped last year, and its most recent ad campaign – showing models participating in a catfight and a lesbian kiss – was slated by viewers.

The Advertising Standards Authority, which fielded more than 100 complaints about the TV execution, decided not to investigate. But the episode marked the end of a long relationship between Marks and creative guru Trevor Beattie, former chairman and creative director of TBWA/London and founder of Beattie McGuinness Bungay. Marks is now talking to other shops about the future direction of French Connection’s advertising.

He is confident of sparking a recovery sharp enough to deliver a profit over the full year. For his part, Wolfson is cautious about Next’s chances, saying like-for-like sales in the second half are likely to be down between 2% and 5% – but that is better than the 3- 6% previously forecast.

Whether or not they can fashion comebacks, French Connection and Next are clearly continuing to suffer from the buoyancy of M&S, led by chief executive Stuart Rose. Its latest high-profile campaign features Autumn Collection models Twiggy, Erin O’Connor, Laura Bailey, Noemie Lenoir and Elizabeth Jagger. M&S’ preliminary results for the year to April 1 showed total clothing sales in the second half up by 4.4%, thanks to “well-received ranges, frequent additions of new products and better value, buying and styling”, according to Rose. Clothing sales for the 13 weeks to July 1 were ahead by 10.7% against the first quarter of 2005.

Under Rose’s stewardship, M&S is blooming – although he has become embroiled in the debate about “size-zero models”, claiming Culture Secretary Tessa Jowell’s attack on the fashion industry is mis-timed. Rose has branded Jowell’s calls for a ban on underweight models at this week’s London Fashion Week a “knee-jerk” reaction.

Adding to M&S’ improvement, analysts say the middle-market is also being squeezed from below by continuing consumer interest in the once-scorned value fashion chains, led by the likes of TK Maxx, H&M and Primark.

Although Primark’s owner Associated British Foods recently reported a slowdown in underlying sales, the City is in no doubt that its surge over the past two years has eroded the share of other boutiques.

The experience of shopping at Primark is wryly described by one observer as “like rummaging around in a jumble sale”, but its formula has grabbed cash-conscious consumers’ attention. Next’s attempts to pack its stores to the rafters have not been so successful.

Caught in the Middle

Marketing experts are divided about Next’s chances of regaining ground.

Monica Lucas, a partner at retail and marketing consultancy Pragma, believes there are several reasons why Next Retail is suffering. She says: “Its merchandise has become safe and bland to the extent that it is a fashion-free zone. It is also caught between a younger and older age positioning, which is confusing consumers. In terms of price positioning, it is quite high against the likes of M&S and Dorothy Perkins.”

Verdict Research senior retail analyst Maureen Hinton adds: “Next’s high street operation is tied up with running ranges in the directory. In some ways, the model has reduced flexibility. It has to be faster in producing new ranges. Fashion this season is more its flavour, but it needs to invest in design to be different and excite consumers.”

Origin Brand Consultants senior consultant Alan Atkin is more upbeat: “Next, along with M&S and other middle-market retailers, faces the challenge of being all things to all people, and to that extent it can appear schizophrenic. But the soaring online and directory sales are testament to the fact that Next is not a dead brand.”

Wolfson recently announced he is giving Next a passage to India, where it plans to open 20 stores, according to sources. To shake up its UK operations, the chain is also reducing in-store lines by 10%, while simultaneously increasing selling space by more than one-fifth. Both measures are intended to reduce crowding on the shop floor.

Next Electricals has also been added to the growing homeware offer. And, perhaps more crucially, Wolfson is testing discount clothing stores, branded Lime, which he claims will be “big business” if a 12-month trial proves successful.

Atkin adds: “Lime is of interest because the idea is to fill gaps in ranges sold through Next’s 40 clearance stores. It aims to offer better quality and design than cut-price competitors like New Look and Primark.” But if Lime turns out to be a lemon, Wolfson will have to wave his magic wand to prevent the once dominant Next becoming a thing of the past.

J Hepworth & Son, a gentleman’s tailors, was established in Leeds Hepworth bought rainwear shop chain Kendalls to develop a womenswear group of outlets, to be called Next The first Next store opened in February, with 70 in total rolled out by July Next for Men launches in 52 shops Next Interiors, a home furnishings division, unveiled Hepworth changes its name to Next and first department store opens in London Launch of Next Directory Lord Wolfson of Sunningdale becomes chairman Launch of online shopping from Next Directory Simon Wolfson, son of Lord Wolfson, made chief executive. He has a law degree from Cambridge and initially joined Next as a store assistant.

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