Clothing margins are likely to come under pressure next year Investec fears and the broker has reappraised its stance on fashion groups as a result.

Investec analyst Katharine Wynne thinks intake margins will have continued to increase during the second half of 2010 and said average selling prices were rising as a result of trading up by shoppers and sales mix.

But she cautioned: “We expect margins to come under pressure in calendar year 2011 for the following reasons: value retailers may choose to chase volume market share, sourcing costs may not be able to be fully passed on, lower income consumers are under greater pressure and we see less scope to improve inventory management.”

She pinpointed Marks & Spencer and Debenhams as among those in a good position to ride changing conditions, but downgraded Next ahead of the retailer’s update on Wednesday.

Wynne said: “We see improved pricing power at M&S, and are raising forecasts and our price target to reflect the positive momentum we see as likely to continue over the peak season.

“We continue to favour Debenhams, where we see the greatest valuation upside and plenty of self-help to support earnings.”

She downgraded Next from buy to hold because, she maintained, it “is more reliant on price increases to protect earnings and therefore vulnerable to market share pressures.”