Next today set out how it sees its business changing in the longer term as sales continue their historic move from the store to online. The update came as the fashion-to-homewares retailer, ranked Leading in IRUK Top500 research, reported full-year figures.
Next said that it had invested in stores and online during the year, and that sales continued to grow overall, as online sales growth outpaced the decline in retail store sales.
“It is a fact of life for those of us who are established High Street retailers that one way or another, less clothing, homeware, electrical goods and food are going to be sold on the High Street and more sold online,” said Next chief executive Simon Wolfson in his review. “For Next, we believe that this market represents a long-term threat to our retail business, but potentially a much larger opportunity for the group as a whole.”
Lord Wolfson added: “We cannot decide how our customers will shop; our job is to adapt and serve them in whatever way they most want. To this end Next ha changed dramatically over the past 15 years. The business has moved from stores to internet, from UK only to international, from mono-brand to multi-brand aggregator.”
His comments came as Next reported group sales of £4.2bn during the year to January 2019, up by 2.5% on the previous year, while pre-tax profits of £722.9m were 0.4% down on last time. Full price sales grew by 14.8%, while total sales growth including discounting grew by 14.7%.
Integrating stores and online
During 2018, the retailer said, it had focused on integrating its retail store and online businesses, in order to ensure that stock was easily available for sale. It now offers delivery from the store when warehouse stock is unavailable for an online order, and it offers same-day click and collect. Store to store stock balancing
In 2019, its priority will be to improve returns processing. Before Christmas it took an average of 15 days to make stock that had been returned to the store available for sale, and that tied up stock worth £70m, although the queue has since reduced to about £30m. It also aims to introduce a fold-and-pack operation in stores to make items ’online ready’ and available for resale as soon as they reach the warehouse.
During the year the retailer closed its Lipsy website, moving those sales to the Next websites, and reported under the third-party Label business.
15 year ‘stress test’
Looking ahead for the next 15 years, Next said that the focus would be on becoming the customer’s first choice online retailer for clothing and homewares, and to be the most profitable third-party route to market for partner brands. It said that it was likely to need fewer stores if like-for-like sales declined in its stores by around 10% a year. However, it believes stores will remain essential as a place for shoppers to pick up their online orders – and suggests a network of around 270 stores would help it to service those needs . Around 120 of those might be loss making, but those stores could be replaced by smaller and less expensive collection shops.
Lord Wolfson said that while complex challenges faced the business, the actions that needed to be taken were simple. Over the next year the retailer will focus on developing “great product ranges – the most important task of all”. It will also invest in and develop its website, marketing, and mobile apps, along with the capabilities of its distribution platform, from warehousing to stores.
Upbeat on Brexit
Looking at Brexit, the retailer said that it was ready for all eventualities, and had the systems and administrative procedures in place to ensure a smooth transition to a new customs regime along with contingency plans to send more stock via alternatives to the Dover and Calais route – although it used those routes relatively little. As yet, it said, the retailer saw no evidence that uncertainty around the shape of the UK’s future relationship with the EU would affect consumer behaviour. “It appears to us that consumer behaviour (in our sector) will only be materially changed if the UK’s departure from the EU (or continued uncertainty around this subject) begins to affect employment, prices or earnings.”
Next also said that under the provisional no-deal tariff rates it was likely to pay between £12m and £15m less in tariffs. “This saving would arise because the proposed reductions in tariffs from countries outside the EU would more than offset any increase in tariffs on goods we currently source from the EU and Turkey,” he said.
“In the medium term, our intention would be to pass on cost price improvements to customers, in the form of better pricing. In the context of £1.7bn of stock purchases, the savings would be relatively modest.”
Image courtesy of Next