Jeremy Warner's Outlook: What now for Next as shares head for stars?

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The Independent Online

What next for the high street retailer Next? Higher and higher the shares have climbed, initial scepticism about the appointment to the chief executive's seat of the still disconcertingly youthful Simon Wolfson now just a distant memory.

What next for the high street retailer Next? Higher and higher the shares have climbed, initial scepticism about the appointment to the chief executive's seat of the still disconcertingly youthful Simon Wolfson now just a distant memory. This stellar performance seems more than backed by the equally impressive record of profits and sales growth the company has achieved over the past four years, yet the shares have now reached such a height that they scarcely dare look down. Even Mr Wolfson admits that they are at a level where it is no longer worth the company engaging in the big share buy-backs which have been turbo-charging the returns to investors.

He also recognises that what up until now has been a relatively benign competitive environment for Next is about to get an awful lot tougher. Higher interest rates are already beginning to nip at the heels of the consumer boom. Taxes are also likely to rise after the next election, further squeezing disposable incomes.

Worse, Marks & Spencer looks like finally getting its act together, after years in which Next has been allowed to get fat at the high street Goliath's expense. Worse still, Philip Green, deprived of the M&S bid prize, promises to go head to head on the high street in a to-the-death struggle for supremacy. His main target is M&S, but if he can fell Next along the way, so much the better.

Next has thrived on knowing its market - smart casual and office wear for the aspiring white collar worker. While the retailing message at M&S has become ever more confused, Next has stuck to its guns and succeeded beyond all expectations. The success of its mail order business, taking the Wolfson dynasty back to their business roots, has been equally impressive. Yet no company succeeds for ever, and Next is long overdue a stumble, if not a downright pummelling. It's a brave investor who continues to support the shares at these rarefied heights

¿ MFI dirty work

Whatever happened to the buck stopping at the top? Yesterday, John Hancock, chief executive of MFI, threw his finance director and supply chain manager overboard in apparent punishment for the calamitous profits warning issued last week. The profits shortfall was attributed to a poor promotional campaign and problems with a new supply system among other things. That makes management failure as much as cut-throat competition the root of the problem. According to the old saying, the fish rots from the head, so to fillet out the bones first looks like the wrong surgery to have performed.

Mr Hancock has presided over an impressive recovery story at MFI since joining the company four and a bit years ago, so it would perhaps have been a trifle harsh to expect him to fall on his sword at the first sign of trouble. Yet to make his juniors into scapegoats looks simply vindictive. I've long wondered how Mr Hancock manages to juggle running a big UK-based business with a wife and family that live in the US. These long-distance partnerships rarely work, and in this instance it seems like the business got the raw end of the deal.

¿ FCUK the shares

Divorce is always a costly business but it is just as well for Stephen Marks, chairman of French Connection, that he settled with his estranged wife, Alisa, when he did. Had he waited a couple more months, it would have cost him a whole lot more. Mr Marks sold nearly £40m worth of shares in his fashion retail chain French Connection "for personal reasons" at the end of June, cutting his share stake to 42 per cent. Yesterday came the perhaps inevitable negative trading update, followed by an equally predictable plunge in the share price. Mr Marks achieved 410p a share, close to an all-time high, to fund his divorce. By close of play yesterday, the shares were trading at less than 330p. Those who bought might reasonably think they were FCUKed.

Mr Marks is a brilliant entrepreneur who's done fantastically well for his shareholders over the years. Yet you cannot help but think the distraction of his separation has caused him to take his eye off the ball. French Connection was just another also-ran of the high street until it hit on the idea of branding itself FCUK. It turned out to be one of the most brilliant marketing coups of recent times, causing one Old Bailey judge to remark that the logo was "tasteless and obnoxious". Mr Marks couldn't have bought such publicity.

But just recently the brand has begun to look, in the words of Drapers Record, "tired and tacky". On a visit in the early summer with my daughter to a city centre French Connection, I was amazed at how few people were in it, and how little of appeal there was to buy - even for a shopaholic teenager. This may have been a relief to me, but alarm bells must surely already have been ringing at French Connection.

Mr Marks cannot be faulted for the timing of his share sale, which was presumably dictated by the money needs of his separation. The rot, in any case, didn't set in until August, which was more than a month after the shares were sold. Yet these things are on a long fuse and the excuse cited by Mr Marks - that retail conditions in August were unusually poor - doesn't square with Simon Wolfson's reference to a benign competitive environment. French Connection and Next are very different retailers, but there is none the less a suspicion that while Next continues to thrive, French Connection is beginning to lose its way. Mr Marks says the FCUK brand is here to stay. Others might think it already screwed.

¿ Emissions trade

While Tony Blair was busy polishing his environmental credentials in the grand surroundings of the Banqueting Hall on London's Whitehall yesterday, half a mile away in the rather less salubrious surroundings of a basement conference room in St James's, a group of energy experts who know more about the subject than the PM is ever likely to, was debating how his vision of an emissions-free Britain might be turned into reality. The tone of the discussion was not encouraging.

From next January, a European wide emissions trading scheme comes into operation, which will attempt to reward those who cut the amount of carbon dioxide they produce and penalise those who exceed their allocations. The scheme is fine in principle, but there are big practical drawbacks.

The problems begin with the actual application of the scheme. For a start it does not cover the biggest source of greenhouse gas emissions, transport, or the CO 2 that drifts into the atmosphere from every home in the land. Second, the allocations afforded each member state, which influence the amount industries will have to pay for the privilege of being allowed to continue polluting, are the product of a shabby compromise. The result is that the tradable permits are unlikely to be costly enough to encourage firms to cut their emissions. It may be cheaper for power companies to buy permits to produce electricity from polluting coal-fired stations than to generate from more expensive gas-fired facilities.

Britain has gone further than the rest of its EU counterparts in signing up to emission targets which go well beyond its obligations under the Kyoto agreement, this in the belief that a massive increase in renewable energy will come to its rescue. The result is that Britain will be at a disadvantage, not just to those countries such as the US, China and Russia which have not ratified Kyoto, but also its Continental rivals.

Nevertheless, someone has got to take a lead and a start has to be made somewhere. The idea of a trading scheme which rewards industry for emitting less has got to be better than one which taxes them for producing more pollution. Getting it to work as it is intended to looks as challenging as ever.

jeremy.warner@independent.co.uk

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