In the world of retail, the pandemic has resulted in the survival of the fittest. The Next (LSE: NXT) share price has soared since the first UK lockdown in March 2020.
At present, it’s at 7,930p, having been above 8,000p on Thursday. I reckon the stock could break through the 8,500p marker. Here’s why.
#1 – Online sales boost the Next share price
Over 50% of Next’s 2019/20 revenue came from online sales. This has so far helped the company steer itself out of the coronavirus crisis. Although Next has had to temporarily close all of its stores in the UK due to the lockdowns, it’s the online sales that have helped keep it afloat.
I think Next is in a good place to weather the storm. The fact that it adopted an online strategy early on has helped the company of late. I expect Next’s online sales to grow even after Covid-19 is a distant memory.
Now more than ever, consumers have realised how easy it is to order online. For this reason I think the Next share price can rise as it’s in a good position to capitalise on the long-term behaviour shift to online shopping.
#2 – Next’s strong brand
I think it has a very strong brand in the UK. Not only do its products offer value for money, but I think it’s the broad range that appeals to the mass of consumers. It’s a staple British high street retailer, which sells clothing, footwear, beauty and home products.
Not only does the UK consumer like Next’s brand, the international market has taken a liking to it as well. Overseas sales have been growing and I expect this to continue.
Next’s supply and distribution works well in the UK. I expect the retailer will be able to successfully replicate this overseas to capitalise on the international opportunity. This should prove positive for the Next share price.
#3 – Acquiring new brands
Next had been seen as the frontrunner to buy the Arcadia retail empire out of administration but pulled out as the price was too high. From this we can see that it won’t pursue growth at any price and won’t overpay.
Next will pick and choose which brands it buys or links with as it did last year when it took on Victoria’s Secret UK. There’s no point in buying a brand that doesn’t fit the existing business. In my opinion this won’t work and could be a disaster waiting to happen.
I think retailer administrations could work in Next’s favour. It could pick up some great brands for bargain prices and bolt them on to the business as Boohoo did with Oasis and Warehouse in 2020. I reckon such bargain buys could boost the Next price further to 8,500p.
#4 – Reducing debt helps the share price
I like a company that has a focus on reducing its debt pile. Next certainly has its eye on its liabilities. In its recent trading statement, the company forecasts to reduce its year-end net debt by £487m to £625m.
I think this is a substantial reduction in net debt, which places the retailer in a stronger financial position. This is turn, I expect to boost the Next share price.
We also need to remember that all retail is a risky at present, but Next is on my watchlist.
The post 4 reasons why I think the Next share price could rise to 8,500p appeared first on The Motley Fool UK.
Nadia Yaqub has no position in any of the shares mentioned. The Motley Fool UK owns shares of Next. The Motley Fool UK has recommended boohoo group. 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.
Motley Fool UK 2021