Lockdown is hitting most businesses hard. The full consequences and damage to the economy may not be known for months or even years. While some industries, such as supermarkets, seem well placed to hold out amid the turmoil, others such as airlines may never recover.
One industry that I suspect is towards the more negative end of this scale is clothes retailers. People do not usually buy new clothes or accessories in order to stay in the house. This is why I had my doubts about whether the recent decision to reopen its online store in a limited capacity will be enough to help the Next (LSE: NXT) share price.
Looking more deeply, however, I think there may be an opportunity if we can find the right time.
Exceptions to the rule
First, it is worth noting that people do still need clothes even if they are not able to go to restaurants, pubs, and parties. Sports clothes, for example, which Next does not supply, could even see a surge in demand as lockdown increases exercising at home and going for a run.
The other key area of clothing sales may come from the children’s section, which Next does supply. Kids may not need the latest fashions for school right now, but they don’t stop growing just because of lockdown. With good weather in the UK reminding everyone that summer is approaching, summer clothing for both children and adults may also be seeing demand increase.
These signs that clothing demand may not be quite as dire as feared show up in the company’s first day of selling this month. Next online was shut down for three weeks for the safety of its warehouse workers due to the coronavirus. When it reopened, orders reached maximum capacity in about 90 minutes.
It’s true that this capacity is now severely reduced in order to protect its workers. Still the news is a pleasant surprise. One could be forgiven for thinking it might be enough to help. However, looking at the Next share price it seems most investors disagree.
What’s the problem with the share price?
The problem is that these small spots of optimism may not be enough to offset the greater losses of its physical branches. Analysts are suggesting Next may see as much as a £1bn hit to its finances because of coronavirus.
However, in its 2020 full-year results Next reported revenues of almost £4.4bn, about 46% of which came from online shopping. For me these figures suggest two things. Next sales figures seem robust enough to take a hit. What’s more, it has strong brand recognition that will serve it well when everything gets back to normal. I do have concerns about how the loss of revenue will impact profits.
These figures also highlight the importance of its reopened online arm. Admittedly, the limited capacity will dent sales, but it may give the company the support it needs to get through the worst of times.
I am not sure if we have yet seen a low for the Next share price. Personally I will be on the lookout for a dip, as I think the company will be able to do well when lockdown ends.
