“Maybe I can pray. Maybe I can wait. Maybe I can blame it on the weatherman.”
You might be forgiven for attributing those thoughts to Next boss Lord Wolfson, but they are actually the lyrics of nineties Irish girl group B*Witched.
My street cred will be done few favours for mentioning Dublin’s nineties pop heroines but their words are, unwittingly, becoming increasingly appropriate in fashion retail.
Wolfson’s warning last week, although not quite as poetic, epitomised sentiment not just at Next but across the wider fashion market.
“Sales performance has remained extremely volatile and is highly dependent on the seasonality of the weather,” Wolfson said, as Next posted a 1.3% increase in full-price sales during its third quarter.
The retail veteran added: “Week-by-week sales volatility makes it very hard to determine any underlying sales trend.”
The City was spooked by Wolfson’s candid admission.
Next’s share price closed at 4,932p on Halloween, but tumbled 9% to 4,479p by the time trading ended on November 1 – the day of Next’s update.
Marks & Spencer’s stock fell 4.3% to 329.3p on the same day, Primark owner Associated British Foods had 2.25% wiped off its share price – and even etail high-flyer Asos took a 2.4% hit as Wolfson’s words reverberated across the market.
“Clothing and footwear emerged as the two worst-performing sectors of the industry in October after like-for-like sales slumped”
The latest BRC-KPMG retail sales figures, published this morning, served only to echo Wolfson’s caution.
Clothing and footwear emerged as the two worst-performing sectors of the industry in October after like-for-like sales slumped.
Indeed, clothing shops experienced their worst decline since the monthly barometer started breaking out their bricks-and-mortar performance in January 2016.
By contrast, fashion and footwear had occupied the top two spots in September, as – you guessed it – the colder weather boosted sales of autumn and winter purchases.
Fashion troubles
The weather aside, there are further worries as far as fashion is concerned.
Although last week’s interest rate hike is not expected to spark an immediate slump in consumer spending, the Bank of England’s move is a sign of things to come – and fashion chains could bear the brunt if shoppers tighten the purse strings.
The slump in the value of the pound, business rates and increasing labour costs are only compiling the pressure.
Brexit fears and the subsequent slump in the value of the pound have created further cost headwinds for those who source in foreign currencies, while business rates and the introduction of the national living wage and the apprenticeship levy have heaped further bottom-line pressures on over-shopped high street chains.
With such challenges in mind, it is no wonder that City hedge funds have increased their short positions in Next, M&S and Debenhams to levels unmatched since the financial crisis.
“Around 12% of M&S’ stock is now shorted, compared with less than 5% a year ago, while short-sellers also own 9% of Debenhams and 5% of Next”
Around 12% of M&S’ stock is now shorted, compared with less than 5% a year ago, while short-sellers also own 9% of Debenhams and 5% of Next.
Perhaps that will serve as a wake-up call.
Maybe others will follow M&S and accelerate efforts to streamline their inflated store portfolios.
Perhaps Brexit will provide the catalyst for retailers to bring production closer to home, allowing them to adapt quicker to consumer demand, fashion trends and, of course, the weather.
One thing is for sure: as margins feel the pinch and top-line sales become even tougher to come by, fashion retailers cannot afford to pray or wait for a turnaround.
Neither can they afford to wait to take remedial action – the time for self-help is now.
If last week’s share price slumps are anything to go by, the City is growing increasingly alarmed of them blaming it on the weatherman.
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