Next has dropped the price of its current season womenswear by 7%, according to broker Credit Suisse, flying in the face of many retailers’ decision to up prices in line with cost price inflation.
Credit Suisse analyst Tony Shiret said in a note today that an investigation in to nearly 20% of Next’s current womenswear ranges showed that average selling prices were down by 7% year-on-year.
He said: “This has thrown off a result we did not expect.”
He added: “This makes sense in the context of tightening consumer spend and points to sensible risk management in our view (albeit the re-mix of product involved is likely to have been achieved through some de-specification of product).”
Next chief executive Simon Wolfson said last year that he expected clothing prices to increase at the upper end of a 5-8% forecast for spring 11, due to the well documented increases in the price of cotton and other fabric prices, freight and labour costs.
Many retailers have also forecast a double digit increase in the price to the consumer of outerwear for autumn 11.
Shiret added: “The consequence of trading down among mid market operators if it happens will be a compression of the UK market’s overall price architecture. Obviously to achieve this position product presented will overall be of a lower specification and this season will not be strong in a fashion sense. What is more interesting overall will be to see how this plays out among the players in what will be a relatively congested mid market.”
Shiret added that Next’s Directory business had been more profitable than originally thought.
An analysis of the balance of Next’s profit between its retail arm and the Directory showed that the mail order and online arm has supported the “declared profitability” of the stores, said Shiret.
He added: “As Directory is entering another growth phase these favourable dynamics should continue to underpin forecasts. The analysis also highlights potentially a greater gearing to better sales performance at Retail than is currently supposed in our view.”
Next will report its preliminary results on March 24. Shiret said that he forecast that Next would update cautiously on near term trading prospects. He added that he did not expect changes in profit estimates for the 2011/2012 year.