The bellwether of the UK high street, Next, this week revealed a better-than-expected performance for its first half, despite what it described as a “volatile” trading environment.
Next’s focus on online growth – this was the first time first-half online sales had overtaken in-store sales – as part of a strong multichannel proposition that takes advantage of its expansive UK store estate, as well as favourable renegotiated rent deals, led it to increase profit guidance for the full year by £10m to £727m.
Announcing the results, CEO Lord Wolfson said product, which took a knock in autumn 16 when the retailer admitted it had moved away from its core “heartland”, was back on track, adding that the hot summer had boosted sales, and autumn ranges had prompted good initial reactions.
However, despite the positive results, Wolfson was characteristically cautious and warned of several challenges ahead, including the continuing shift from store to online, the diversion of spending from clothing, and the prospect of a no-deal Brexit on the horizon.
He said Next was prepared for a no-deal outcome, but he urged the government to provide clarity on its intentions on tariff rates in the event of a no deal.
Another ongoing challenge that raised its head again this week was discounting across the high street and online. Even Next, traditionally renowned for its strict policy of only holding two Sales a year, succumbed and launched a mid-season promotion last weekend.
Warm September temperatures have led to a sluggish start to new-season trade and the lack of demand from customers has caused many businesses to slash prices in a bid to shift stock.
While discounting has its place for clearing old stock, it should not be the first port of call to increase sales, particularly so early in the season. It erodes margins and damages businesses in the long run. Retailers need to focus on product and a seamless customer experience to tempt shoppers and, ultimately, boost sales.
As Brexit negotiations continue, consumer confidence is likely to wane further, ahead of all-important peak trading. Now more than ever, retailers need to hold their nerve.