Next has driven up online sales by 23% in last quarter, against its store sales dropping a further 18%. The retailer also admits that its biggest worry is whether non-essential shops will be forced to close again due to coronavirus.
Full year profit before tax, based on Next’s new central sales scenario, is now forecast at £365m, £65m higher than the central scenario given in September.
The retailer warns that: “The biggest single unknown is whether England, Scotland and Northern Ireland will follow Wales’ decision to shut non-essential retail shops. A two week lockdown in England, Scotland and Northern Ireland in November would reduce Retail full price sales by around £57m3 (depending on timing), representing 17% of Retail full price sales and 6% of the Group’s full price sales in the quarter.”
However, analysts suggest that Next is already set up to shoulder any potential challenges that would come from a second lockdown as it’s firmly established as an online retailer – its latest figures show that over 50% of purchases for Next products happen online.
This is great news for Next according to research from ecommerce experience specialist Bloomreach, which reveals that more than 90% of consumers are deliberately avoiding physical stores to limit their chances of catching COVID, leading to a surge in demand for non-essential products online, leading to 65% of consumers now researching products online even when they plan to go to a shop.
It’s also worth noting that Next’s segment has been one of the hardest hit by COVID: ‘non-essential’ shop closures have of course impacted the high street, followed by the lockdown months resulting in a drop in demand for formal wear or seasonal clothes which has yet to recover.
As the UK prepares for the colder months, Bloomreach has found that the most popular search terms are leggings, joggers, cardigans, dresses and jeans as Brits plan to get comfy this winter, instead of investing in occasion clothes.
For brands like Next who already operate extensively online, this holiday season is going to be a boon: Bloomreach predicts that online retail will increase between 36%-38% over last year’s festive season. That is, as long at Next ensures it is ready to fulfil an onslaught of new orders – something Next can easily forecast since it already has access to a lot of data on popular products online and how their customers behave (next day delivery, average basket size, etc.). This puts Next in a favourable position at a time where the high street faces a potential retail disaster during the festive season.
The biggest challenge Next and other retailers set up for online success will face is whether it can get orders delivered to last-minute shoppers: Bloomreach forecasts that demand for home delivery will exceed carrier capacity by 5-10% before Christmas, which means brands will need to ensure they inform their customers of any potential delays to avoid disappointment under the Christmas tree.
Bloomreach’s data aggregates findings from 25% of all ecommerce search and transactions in the UK and the US. The ecommerce specialist works with over 500 large brands including M&S, Next, NHS Digital, Ryman’s and Hobbycraft, and can provide clear views on the current state of the ecommerce market, commentary on the challenges ahead for the industry, the winners and losers of 2020 and what the industry will look like in 2021 – in terms of jobs as well as the state of the high street and ecommerce.
Nigel Naylor-Smith, Head of Retail and Hospitality, Fujitsu UK, adds: “Next’s latest trading update reflects the year for the industry as a whole. Before the Covid-19 pandemic, Next already had a strong omnichannel offering, which put the retailer in a strong position during the UK’s lockdown. In-store sales would inevitably decline, but its ability to offset those losses through online sales could be crucial moving forward"
He says: “As the UK heads into a wave of Tier 2 and 3 lockdowns over the coming months, Next’s online offering will be even more important. The high street’s peak Christmas trading period looks likely to be heavily disrupted, so online channels will be even more important. Retailers are investing in physical resources, such as distribution centres, to improve efficiency in the supply chain and delivery to address this demand. Businesses will ultimately need to maintain a user-friendly online offering over the festive period and ensure that supply chains and infrastructures are prepared for a rise in online demand.”