Throughout lockdown, clothing retailers have been one of the sectors I’ve been most bearish about. As I’ve said a thousand times, people don’t buy clothes to sit around the house. But things are starting to look up, with non-essential shops soon to reopen. This has me wondering, how will clothing giant Next (LSE: NXT) fare when it reopens?
Next itself warned at the end of last month that it expects it to take longer than previously expected for sales to bounce back after coronavirus. The company said the hit from lockdown was “faster and steeper” than it expected.
Specifically, Next said that even under its best case scenario, it is expecting a 30% drop in full-price clothing sales for the year – about 10 points higher than its stress-test modelling.
Though Next was able to reopen its online shop after a short interlude, one problem it faced is how closely its online shop is related to its bricks and mortar stores. About half of online orders are picked up in an actual shop.
Combined with limited staff, it seems the online arm may not have been able to help the company as much as had been hoped. In addition, even when shops are reopened, social distancing rules will mean far fewer customers can visit stores at any one time.
Next will also see costs associated with measurers to protect customers and staff, such as screens and new entry/exit measures.
Good times Next?
It may not all be bad news, however. Firstly, shops are set to reopen, as summer hits full force. Even with some lockdown measurers in place, people are becoming more able to socialise. New summer clothes will be needed, even if you are sitting with friends in the park and not the pub.
There has also been some evidence in European countries, where a number of UK firms have been able to open stores, that people are buying more clothes (though perhaps fewer people buying them). This may help Next’s sales figures.
Next also benefits from a strong brand and a decent financial position heading into the crisis. During lockdown, the company had about 84% of its workforce under the government furlough scheme.
This may seem a like another sign of trouble, but I take it as a sensible cost saving measure, implemented quickly.
As always, the impact on the Next share price may not come from the numbers themselves, as much as expectations. In this sense, Next may be doing itself a favour by warning of bad times to come. Anything to the contrary – even if it is a ‘not so bad’ result, could help shares rather than hinder them.
It is still very days to make these kinds of judgments. There is going to be a lot of uncertainty this year as lockdowns end, and clothes retailers could be among the most unpredictable. That said, I feel Next may be in a strong position all things considered.
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Karl has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.