Next will outperform Marks & Spencer’s clothing business as the fierce rivals battle to cope with intense competition in fashion retailing, according to Moody’s, the credit rating agency.
Next has an advantage over M&S in brand recognition, online sales and cost control over the next year or 18 months but M&S has closed the gap on profitability by buying more materials direct from suppliers, Moody’s said.
M&S has benefited from rising food sales that have helped counter weak sales of clothing at its general merchandise business but the grocery price war will reduce that advantage, Moody’s argued.
Both Next and M&S had disappointing clothing sales at Christmas, blaming poor product availability and unusually mild weather that deterred shoppers from buying coats and other warm clothes.
Next is changing the way it buys products to account for changes in shopping habits. M&S joined Next in limiting pre-Christmas discounting to protect profit margins, which have been boosted by improved buying practices.
Next is usually regarded as the most well-run fashion retailer in Britain whereas M&S’s clothing sales have fallen almost continuously for years. Moody’s said the gap between their performance was set to continue.
Moody’s said Next’s large stores would be an advantage because clothes buyers are shopping in retail parks instead of on the high street. M&S’s revamped online operation is growing quicker than Next’s but Next clothing sales will rise faster overall, Moody’s said.
“Next’s credit profile will remain stronger than M&S’ in the next 12 to 18 months due to its superior margins, which are driven by a combination of solid brand recognition, a premium online distribution channel and tight cost control,” Ernesto Bisagno, who wrote the report, said.
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