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Next refuses price cuts despite 14% profit fall
Adapted from an article by Martin Waller in the Times, March 26th, 2009.
Next, the fashion retailer, is refusing to cut prices in the economic downturn
despite a tough financial year that saw pre-tax profits fall 14 per cent to
£428.8 million.
Simon Wolfson, the chief executive of Next, admitted that Next's position at
the top end of the mass market, which is below high-end fashion stores but
above discount clothing retailers, "is not the most comfortable place to be
during a recession" but pledged not to follow the rest of the fashion industry in
slashing prices.
The retailer was one of the few not to mark stock down in the run-up to
Christmas, though Mr Wolfson accepted this must have hit sales.
Over the 12 months to January, like-for-like sales, which strip out revenue
from stores opened during the financial year, fell by 6.5 per cent while total
sales for the group fell 1.7 per cent to £3.2 billion.
But Mr Wolfson said that, other than at traditional sale times, "Next intends to
continue trading at full price at all times."
Next said that it expects the first half of the current financial year to be
"particularly tough", with rising levels of national unemployment while people
in jobs will have less disposable income as bonuses and overtime payments
are hit.
But the company said: "Those in employment are likely to benefit from a
reduction in financial pressure.
"As we progress through the year, anticipated falls in mortgage interest costs,
fuel, energy and possibly food mean many will be significantly better off. On
balance we believe that negative sentiment will override these positive effects
for some time and many consumers will choose to increase savings rather
than expenditure."
Next said today that it is being hit both by the uncertain economic climate and
the weakness of sterling, especially against the euro, which is making
sourcing of goods more expensive.
"While we do not underestimate the difficulties presented by the year ahead,
we believe we are well prepared to meet the challenges of the continued
economic downturn," said Mr Wolfson.
©McGraw-Hill 2009
Economics for Business 3e David Begg and Damian Ward
Question
1 What are the key features of monopolistic competition?
2 Evaluate the business strategy being adopted by Next.
©McGraw-Hill 2009
Economics for Business 3e David Begg and Damian Ward