Author Felicity Anderson
UK retailer Next has seen its shares fall by more than 7% following its announcement this week that it missed its third-quarter sales forecasts.
The company reported that in-store sales fell by 7.7% over the three months to October, blaming, “extremely volatile trading,” and warm weather, which made it harder to sell Autumn and winter stock, according to the BBC.
Website sales rose 13.2% over the period, which provided an overall growth in sales of 1.3%, however, the disappointing in-store figures led the retailer to revise its full-year profit forecast.
It has shifted its numbers down the way from previous forecasts of between £687 million and £747 million to between £692 million and £742 million.
Like many other big-name UK retailers, Next is struggling to entice customers in store as shoppers increasingly chose to buy online.
Tough market conditions, as real pay continues to drop, and prices keep rising, also means less purchasing power for customers, which could signal trouble ahead for retailers over the crucial festive trading period.
Why are instore sales falling?
The rise and rise of online shopping
Consumers are increasingly moving away from shopping on the high street, favouring the convenience of buying online.
At the beginning of this month Aviva Investors, one of the UK’s biggest property owners, “predicted the death of the traditional shop,” according to the Times.
The company, which manages £20 billion worth of property in the UK, including many shopping centres, reported to clients that the rise in online shopping and ‘smart technologies,’ will see the demise of shops as we know them.
The effects of this are already being felt across many of Britain’s big-name stores, including Debenhams, who last week reported a sharp dip in annual profits, which are down by 44% at £59m but increased online sales.
A dip in profits but a rise in online sales
Sky News reports that the department store blames its lacklustre figures on the costs of its Redesign programme, “aimed at making its offering more attractive and profitable in the longer term.”
The store also acknowledged that shoppers’ budgets came under pressure from inflation outpacing wage growth.
Like Next, however, it’s gloomy overall sales figures were tempered with promising digital numbers, with online sales growing by 12%, and mobile orders surging by 57%.
As a result, the retailer is focused heavily on its digital offering and has recently upgraded its website for an enhanced online shopping experience.
Will Christmas bring Next and other retailers some festive cheer?
The run-up to Christmas is a crucial trading period for retailers, including Next, but sales numbers, both instore and online, are largely dependent on conditions completely out with their control.
Russ Mould, investment director at AJ Bell explained to This is Money that colder weather and a turnaround in the pound would help improve Next’s fortunes over the next two months.
“Two things could make a big difference to Next’s fortunes. The first is a cold snap. That would help the company shift its stock of winter warmers without having to discount its way out of trouble. The second is a rising pound – that would lower its import costs and dampen wider inflation, to the potential benefit of consumer spending.”