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Next looks to delivery and international expansion to boost online sales growth

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Next is looking to improved delivery and international expansion to boost its highly-profitable online sales over the coming year.

The measures are part of a five-pronged strategy for growth at the multichannel fashion retailer, which said as it released full-year results today that it will also develop the company’s brand, invest in profitable new space, improve service and control costs.

But the online measures are among the most significant since ecommerce is the most profitable part of the business. During the year to January 2014, Next profits lifted by 11.8%, from £622m to £695m. Next today released figures showing that online contributed £48m of the profit growth, while new space contributed £12m. The company’s aim is that stores contribute 15% of sales as profit – currently 90% of stores achieve this.

The strategic update came as Next today reported 12.4% growth in its online and catalogue business the Next Directory during the year, compared to the previous year, while store sales grew by 1.7% over the period. Total sales grew by 5.5% to £3.7bn, while pre-tax profits rose by 11.8% to £695m.

Investing in online is a key pillar of the Next strategy, and the multichannel fashion retailer said 45% of its online orders were now delivered to stores, following the introduction of free next-day delivery to store for orders placed before 10pm. Previously, 30% of online orders were click and collect ones. The service is now to be extended to cover stores responsible for 99% of revenue, compared to 74% now.

In future, said the company, it said it would also focus on improvements to reliable delivery, since around 2% of parcels were not delivered at the promised time. Next said there would always be “a small number of errors.” It added: “how our staff handle these rare events is central to developing our reputation. A company’s ability to rectify mistakes is, for many customers, the litmus test of great service.”

International sales, it said, grew by 86% during the year, contributing 3.9% to the growth of the Directory business. “However,” said the Next statement, “with a turnover of just over £100m it is still relatively small and it would be a mistake to over-emphasise its importance.” The company expects sales in this part of the business will grow by 50% to £150m in the year ahead. Overseas sales are currently serviced from Next’s UK warehouses.

Meanwhile, its Lipsy subsidiary saw retail sales of £20m, wholesale sales of £22m and online sales of £21m. “We expect further sales and profit growth from Lipsy in the years ahead,” said the statement.

Looking ahead, Next said there had been “steady” improvement in the consumer economy over the last year and an over reliance on credit might mean the recovery was unsustainable.

It forecast sales growth of between 4% and 8% for the coming year, and expected pre-tax profits to grow by between 5% and 11% to between £730m and £770m.

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