Next and Morrisons: What a difference a year makes

Emma Haslett
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Leading UK Supermarkets Compete For Their Share Of The Market In The Run Up To Christmas
Morrisons' fortunes have transformed since the beginning of this year (Source: Getty)

What a difference a year makes. This time in 2015, shares in clothing retailer Next were up after it reported a jump in sales in its first half. Meanwhile, Morrisons warned of a “long recovery” as it made plans to sell its underperforming M Local stores amid falling sales and profits.

Yesterday those fortunes reversed: Morrisons ended the day at the top of the FTSE 100, with shares rising 7.5 per cent higher after half-year results suggested the supertanker is inching its way around - while Next languished second from bottom, falling 4.9 per cent, after disappointing results it blamed on a “challenging and volatile” trading environment.

On the surface of it, the pair share little in common other than the fact they are reliant on tills. Morrisons is recovering from a difficult period in which it was accused of losing focus on its core offering. Next, on the other hand, has been the darling of the high street for many years - but it can learn from Morrisons’ example.

David Potts, Morrisons’ chief executive, took the reins in February last year, tasked with finding a way to ward off the price war raging between supermarkets.

Within weeks he had not only ditched fruit and vegetable misting machines - a showy symbol of his predecessor’s belief in the “retail theatre” - but also a raft of executives, including its marketing and digital and retail directors.

Six months later, he also struck that deal to sell M Local stores - the albatross around Morrisons’ neck. And last month it was announced the supermarket had changed the terms of its deal with Ocado to cancel a costly profit share agreement and research and development fee.

Now Next is faced with similar price pressures, as the fall in sterling pushes up costs and, according to CMC Markets analyst Jasper Lawler “may see customers continue a long-running shift to cut-price fashion stores like Primark”.

If Next chief executive Lord Wolfson can learn from Potts’ example, the lesson is not to mollycoddle the company he has led since 1999. In short, trim the fat where and when it is needed. Fortune favours the brave.

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