Next today showed how shoppers were more willing to buy online following Covid-19, and how they now appear favour retail parks over other types of shop. The retailer says the pandemic has accelerated trends it had already seen in action, including the shift to online, lower store sales, and lower retail rents, by about one to two years.
The fashion to homewares retailer, ranked Elite in RXUK Top500 research, is different from many other multichannel retailers in that it already saw more than half of its sales made online before the pandemic hit.
That, says Next, meant that it it already had the scale to make up for the business it lost from its stores during lockdown and continues to lose now. But it also says that online sales have been stronger since stores reopened than they were before the pandemic struck. “It appears that some lockdown habits have stuck and we have been able to take advantage of this shift to online,” said Next chief executive Simon Wolfson in today’s report. But he was not able to say how much of its business it expected to take place online in the future.
Next says that its online shoppers prefer its retail park stores, and those have also proved most popular post-Covid. “The sales performance of our stores, although down on the year, has steadily improved since they reopened,” said Lord Wolfson in today’s report. “However there has been a marked difference in the performance of different types of stores. The difference is easy to explain in terms of people’s reluctance to be in crowded places, particularly those that many would normally access through public transport. In addition (and again unsurprisingly) those city centres that are most dependent on office worker trade have fared much worse than the average. In contrast, retail parks where customers can park and walk straight into relatively spacious stores have performed much better. Smaller towns have generally performed better than larger cities.” As it renegotiates store leases over the course of this year, it expects that rent will fall by an average of 50%, saving £9.9m a year. Eighteen of the leases being renewed are linked to store turnover.
The retailer says that it has learned as a result of having entirely shut down its business and then gradually reopened it during lockdown. It is also finding new opportunities, including a joint venture with Victoria’s Secret in the UK and Republic of Ireland, and a new project to open four beauty halls in partnership with landlords in Watford, Milton Keynes, Gateshead Metro Centre and Reading.
Today’s update came as the retailer today reported sales from continuing operations of £1.3bn in the 26 weeks to July 25. That’s down by 36% from £2bn a year earlier. First-half online sales fell by 14% to £862.6m, and retail sales by 61% to £344.6m, as a result of closures. Full price sales were down by 33% on last time. At the bottom line, pre-tax losses came in at £16.5m, down from a profit of £327.4m last time, when reported in line with new accounting IFRS 16 standards. Before those standards – which put greater weight on retail leases – were taken into account, pre-tax profits came in at £9m.
In the last seven weeks – since the end of the first half – full price sales rose by 4% on the same time last year, but in the rest of the financial year the retailer expects to see full-price sales fall by 12% on last time, while pre-tax profits are expected to come in at £300m over the full-year.
Wolfson said: “The first half has been much better than we could have possibly hoped in March. The company has made a small profit – but the most important thing is that on pretty much all the upside and downside scenarios for the year it will be profitable and we will reduce our net debt.”
He said that despite the huge trauma and expense of Covid-19, there had also been some good things that emerged. “It has accelerated the pace at which we have started to develop some new opportunities for the group,” he said, adding: “We have been more open-minded and potential partners have been more open-minded about the results.”
New Next projects
Next is to operate a chain of Victoria’s Secret stores on behalf of L brands, while also selling its products and those of fellow L brands business Pink via its own sales channels. Next and L brands have agreed a joint venture that will sell via about 18 standalone Victoria’s Secret stores and a dedicated Victoria’s Secret website in the UK and Republic of Ireland. It will also sell those brands’ products through concessions in some Next shops and via the Label section of the Next website. The deal is expected to save about 500 jobs at Victoria’s Secret, which went into administration in the UK in June, putting 25 shops and 800 jobs at risk.
Next is now operating its first third-party website through its Total Platform pay-as-you-go business. The retailer has launched the Childsplay Clothing website, while the Victoria’s Secret website will also be a Total Platform website. The business model is a commission on sales made via the websites that it operates in full on behalf of clients, from providing website systems and online market through to warehousing, distribution, returns management, payment systems, data management and more.
Next says it has agreed to work with retail landlords in Watford, Milton Keynes,Gateshead metro Centre and Reading to trial new beauty and home concept stores. Another two are agreed on a conditional basis, for opening next January. The new stores are part of Next’s strategy of expanding its beauty business. Currently it sells more than 280 beauty brands, including 43 added in the first half of the year and sales grew by 19% in the first half of the year, despite lockdown. Over the last 13 weeks, Next says sales have grown at about 60% and that level of growth is expected to continue in the second half.
What Next has learned from Covid-19
Next says it has learned how to work more effectively from the experience of shutting down its operation and then reopening it department by department, store by store. Key lessons include more efficient ways of working in warehouse and call centre operations, and how Next can use technology to improve communications, efficiency and job satisfaction for those working from home. It has found, courtesy of Dixons Carphone chief executive Alex Baldock, that call centres can – after all – operate from home effectively, although it is still struggling to keep up with demand. In its warehouses it is now reviewing whether extending the cut-off for next-day delivery to midnight is worth the costs involved, which became more apparent during lockdown.
Wolfson says that buying teams have benefited from restrictions on overseas travel, thanks to more regular contact with suppliers and faster decision making. But the business has also felt the lack of spontaneous conversations between people in the office. Looking ahead, it now expects that the balance between home and office working will recalibrate.