Clothing retailer Next (NXT) plunged 4.5% to £42.20 this morning after analysts at Berenberg downgraded the stock to a 'sell'.
This downgrade comes just days after Next shares leapt 10% on the back of an upbeat update on trading for the second quarter of the year. Shares in the fashion-to-homewares colossus soared last week as the firm reported a surge in online sales after warmer weather in June and July.
But Berenberg is concerned about the retailer's 'overspaced store estate', which runs to 543 locations in the UK. It says the burden of having too many bricks and mortar locations is restricting the its ability to invest more important areas such as its products and free home delivery.
Berenberg says: 'Next was quick to recognise the online opportunity, but has failed to fully adapt its business model.'
Analysts add that while offering free home delivery might reduce Next's margins, it is necessary if it wants to maintain market share.
Berenberg warns that the management's strategy will 'maximise short-term returns, rather than adapting to ensure longer-term survival'.
That can be seen in the fact that retail space at the business has increased by 71% over the past ten years, while revenues are up just 2% over that period.
Berenberg, which has lowered its target price for the stock to 3650p, says Next risks being the next Kodak, failing to adapt as its industry rapidly changes.
