Next shares drop back down after downgrade from Berenberg

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Next shareholders are on red alert after a downgrade (Source: Getty)

Shares in fashion retailer Next dropped more than four per cent this morning after it was downgraded by analysts at Berenberg.

Berenberg adjusted its rating from "hold" to "sell", citing an oversized store estate as a major restriction. Next's share price was down to 4,200p by midday.

Earlier this month the retailer's shares rallied, jumping as much as 10 per cent after a positive trading update. But Berenberg said this represented "material downside".

Consumers, said analysts, are now most focused on product and free home delivery, which they believe Next is poorly positioned to deliver.

Read more: High street fashion sales sag as shoppers shun discount season

"We believe management’s current strategy is formulated to maximise short-term returns, rather than adapting to ensure longer-term survival," they said. "This is preventing Next from investing in areas that matter most to the consumer, in our view, leading to market share erosion."

Analysts also pointed to the weakness of Next's product offering, hampered by a slow-to-respond supply chain. "Next lacks the differentiated product offering needed to acquire customers, in our view."

Other analysts raised similar concerns after the forecast-beating update. Hargreaves Lansdown's George Salmon said "behind-the-curve" clothing ranges have been dragging on sales.

Revenues from Next's stores have crept up two per cent over the last ten years, despite space increasing by 71 per cent.

Read more: John Lewis gives rare boost to fashion sector with double-digit sales jump

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