Just what is the best way for online retailers to expand abroad? More stores or more ecommerce? At leading online UK fashion retailer Next this week, the vote was unequivocally for online.
The trader, currently ranked at number nine in Hitwise’s monthly online UK hot shop list, revealed in its results for the year ended January 2010 that its focus is firmly online rather than in new store openings as it searches for international growth.
Chief executive Simon Wolfson said: “The internet allows us to serve a customer base which is dispersed over a large area without the need to take on fixed assets and stock holdings in numerous locations. While in any one town or city there may not be enough Next customers to justify the investment in a store, there are enough customers in a whole country to justify the investment required for us to trade online.”
Customers from 35 countries, from Europe to North and South America, can now buy online from Next’s international website. Stock is all held and shipped from the UK, and customers will pay €5 for a delivery to mainland Europe in seven working days, and $10 for a two-day delivery to the USA.
That’s expected to generate turnover of £7m over the coming year, resulting in £1.4m in profit. In the year just reported, the international website business recorded a loss of £0.5m after one-off charges of £1.3m. So far, said Wolfson, the work has been on establishing the overseas operations – but in 2010-11 time and money are set to be put into marketing them.
At the moment the retailer has 14 owned stores in Central Europe, five in Northern Europe, and four in China, but it saw international profits fall during the year from £9m to £1.2 million after one-off charges of £4.9 million. Those charges include both investment in international e-commerce as well as a write down in the value of the company’s Czech business. Sales have slowed following the global recession - in Next’s directly-owned Central European stores, for example, they were 14% down.
Gordon Mackintosh, head of small business and distribution at Cisco, is not surprised by the move to concentrate on online. He says the web is fast catching up with and even overtaking the customer service offered by high street stores. “Traditionally, high street retailers have sought to differentiate themselves by providing great, in-person customer service,” he said. “However, with the growth of web 2.0 innovations such as rich video and social media, online retail is rapidly becoming business’ best method of engaging with and retaining customers.”
Our view: It seems no great surprise that spending online will beat investment in costly new stores that may be miles from many potential consumers. But the marketing work will certainly be needed to build the Next brand in so many new territories. Will it be enough for the sites to be English language-only, as they currently are? That’s what we’ll be waiting to see.