Join our community of smart investors
OPINION

Next's Kodak moment

Next's Kodak moment
August 18, 2017
Next's Kodak moment

I am not alone, and it’s not just the high street’s tiddlers that are prompting cause for concern – we are used, after all, to seeing poorly run retailers shut up their shops even when trading elsewhere is good; ‘retail is detail’ goes the old saying, which unfortunately too many retail managers often forget.

What caught my eye this week was the view of analysts at Berenberg of Next, one of the UK’s retail bellwethers, who suggested that the group was facing “a Kodak moment”, and not in an ‘unforgettable memory’ sense. What they’re talking about is the moment at which the venerable camera manufacturer, which controlled nearly two thirds of the world’s film market, found itself marginalised first by Japanese digital cameras and latterly by the integration of digital cameras into mobile phones. By 2012 the 125-year old company was bankrupt.

It’s an interesting analogy that at first glance does not sit well with a clothes and homewares retailer – but the more you think about it the better it works. Kodak was in fact invented the first company to introduce a digital camera, but was subsequently very slow to transition more fully to digital imaging. It’s an example of something I suggested a few weeks ago: that when faced with such market inflection points incumbent companies find it very hard to wean themselves off cash cows they have become reliant on.

Similarly, Next was often held up as a retailer especially well positioned to transition to the new world of e-commerce, because of its legacy of catalogue retail which bore many similarities to the demands of e-commerce. This, argues Berenberg, has not been the case – while it was an early mover in UK online retail, it has not “fully committed” to the channel for fear, suggests the analyst, that it would cannibalise its own large store base. Another example of the incumbency trap in action.  

It seems unlikely, however, that Next will go the way of Kodak; the same fears over slow-to-respond supply chains and uninspiring product ranges have dogged rival Marks & Spencer for years, and even when Next was in its pomp, M&S still proved a difficult elephant to budge from its position as the top dog in UK clothing retail. But the shine has clearly worn off what was once a stock market darling, as evidenced by the hefty price falls in response to the Berenberg note. Once known for always issuing gloomy guidance and beating it, Next is cultivating a new ‘short-termist’ reputation that leaves its shares vulnerable to shifts in sentiment.