Online surge comes to rescue of Next sales

STRONG online sales helped to overcome tough trading at fashion chain Next’s stores as cash strapped consumers cut back on shopping trips.

Next, the UK’s second biggest clothing retailer after Marks & Spencer, said surging online sales offset a tough third quarter at its shops.

Chief executive Simon Wolfson said he expects the consumer environment to remain subdued until the second or third quarter of next year.

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He said business should pick up after then as high commodity prices, particularly for cotton, ease back.

“I don’t see any dramatic change on the horizon unless something seismic happens in Europe,” he said.

“There is the possibility of some potential upside when we’re into comparisons against the very snowy weeks last year,” he added.

Next’s total sales, excluding VAT sales tax, rose 3.3 per cent in the three months to October 29, beating forecasts.

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This was despite a 3.3 per cent decline at its shops. The total sales rise was thanks to a 16.9 per cent increase at catalogue and online business Next Directory.

The latest figures included a 3.4 per cent boost from new store openings. Lord Wolfson said Directory sales had benefited from the introduction of next day delivery, improved stock levels and overseas sales, which contributed about four per cent of the growth.

Analysts at Nomura said: “A solid set of numbers by Next, with the Directory the key performer, evidencing the benefits of a multi-channel proposition in a period where the broader apparel market was weak, driven by the unseasonably warm weather.”

Retailers are struggling to cope with the tough economic conditions, but online companies are benefiting as consumers take advantage of the ability to shop from home or work.

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At the same time shoppers are going online to find specific purchases rather than heading out on a shopping spree.

The Government said overall retail sales rose just 0.6 per cent year-on-year in September.

In the same month online sales surged 15 per cent, according to industry body IMRG.

Over 80 per cent of Next Directory’s business is conducted over the internet.

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Next said annual profits for the year to January 2012 are forecast to be between £550m and £585m, up from £551m last year.

Chief executive Lord Wolfson said the mood of consumers remains subdued, with people being especially cautious about spending on big ticket items.

He said clothing has been less affected, but the warm weather in October had an impact on sales of Next’s autumn and winter ranges.

Freddie George, analyst at Seymour Pierce, said the performance from the Directory was “knock out” and more than made up for the 6.7 per cent like-for-like decline in the shops.

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Next now expects full year sales to rise between 2.5 and 4 per cent, compared to the broader guidance of two per cent to 4.5 per cent it issued in September.

The weakness in Next’s store sales may not bode well for Marks & Spencer’s half year results next week as it does not have such a big online business as Next.

Liberum analyst Simon Irwin said that while Next’s performance was better than expected overall, the industry could face a difficult few months because stock levels are generally too high, which could lead to heavy discounting.

‘Don’t ease on austerity drive’

Next’s chief executive Simon Wolfson said it would be a mistake for the Government to ease its austerity drive and put more money into shoppers’ pockets.

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“Everyone wants the Government to spend money on their little sector, but the reality is that any money the Government spends has got to come from the taxpayer,” said Lord Wolfson, a prominent supporter of the Conservative Party.

He does not expect the Chancellor to give a boost to consumer spending in this month’s autumn statement.

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