Today, the outlook for UK retailers remains mixed. While the likes of John Lewis, Next and House of Fraser all posted strong sales figures over the Christmas period, not all UK retailers have had a reason to cheer.
A worthy challenger
The environment for UK retailers is improving, though still without a doubt is extremely challenging. The past year has seen a significant reduction in the volatility of consumer confidence and this more sustained period of recovery has allowed investors to differentiate between winners and losers in the sector.
Simply put, the winners have been those companies that have spent the past five years developing an integrated and competitive online offering, rather than as an ‘add on’ to a the high street estate.
Next is a good example of this. Catalogue and online now accounts for over half its profits and is growing quarter on quarter. This compares to what is typically a flat or slightly negative performance for the physical stores. Part of what made Next’s recent performance so impressive was that it managed to deliver a positive like-for-like performance in its shops, something which its management and design team deserve credit for.
Follow Next's lead
What makes Next interesting for an investor is that the market currently values it in line with the sector when, in my view, it deserves a premium rating as it clearly demonstrating a changing mix much more towards higher margin online business.
The company has pragmatically managed its store footprint so that as online grows it will not be left with a large number of redundant shops. This is balancing act that many of Next’s peers have struggled to manage, with many chains still looking like they are not positioned for the retail landscape of the future.
