Next says retail has been transformed during the pandemic – and its future shape is now becoming clearer. Image: Next/PR Shots
Next today reports record revenues after a year in which it sees the future shape of the retail industry becoming clearer. Shoppers, says its chief executive Simon Wolfson, now have an abundance of choice at a time when it has never been easier to launch a brand – or reach new customers through online aggregators. That change, it says, presents threats – but much larger opportunities.
Meanwhile, the fashion to homewares retailer, ranked Leading in RXUK Top500 research, has lowered its sales and profits expectations for the coming year after closing its websites in Ukraine and Russia and moderating its expectations in other overseas markets. That said, it expects the fall in overseas sales to be mitigated by rising sales in the UK. It has also won four new clients for its Total Platform business – of which the Next brand may itself become a client in line with the changing shape of its business.
Next chief executive Lord Wolfson says the retailer has “navigated our way through the pandemic and the structural changes affecting our sector, to deliver record sales and earnings per share,” thanks both to the luck of already having a well established online business and hard work during the pandemic.
He also says: “A world in which new brands can rapidly gain scale presents a threat to large, well established brands like Next. Particularly those, like us, who have grown market share through building a large store network.
“But the possibilities of the internet age present the group with far more opportunities than threats. Next product ranges, liberated from the constraints of finite retail space, can offer far more choice to our customers. And if new and developing brands are going to gain scale at pace, we can enable that process through our own online aggregation business and through passing on the value of our online infrastructure and technology through Total Platform. Finally, in overseas markets, where we have struggled to gain traction, the internet has enabled us to break into new markets, challenging the incumbents in those territories.”
The update comes as Next today reports revenue of £4.4bn in the year to January 29 2022 – that’s a third (33%) up from £3.3bn a year earlier, and 8.4% up on two years earlier – when trade was at more normal levels pre-pandemic. Online sales of £3.1bn were 33% up on a year earlier, and 44.6% higher than two years earlier. while in-store retail sales of £1.4bn were 50% up on last year, and but 22.7% lower than two years ago. Pre-tax profits of £823.1m were up 140% from £342.4m a year earlier – and 10% higher than two years ago. That includes a £10m profit from its Total Platform business, which during the year added four more retailers as customers for its ecommerce technology and fulfilment operations.
In the coming year, the retailer expects sales to be 5% higher than this year but 2% – or £85m – lower than previously expected, while it profits to reach £850m – 3.3% up on this year but 1.2% – or £10m – lower than previously expected. That’s a result of both the loss of £18m in profits from the closure of its Ukranian and Russian businesses as well as lower expectations for overseas growth in other markets, balanced with better than expected sales in the UK.
The changing shape of retail
The pandemic has brought forward the transformation of the retail industry, says Wolfson, in a way that is more than a shift from stores to online, but one in which the internet offers more choice, from new brands and from online aggregators – or retailer and brand websites that now sell a range of third-party brands, including Next, Asos, Zalando and Tmall. At the same time, other one-time stalwarts of the UK industry have “all but disappeared”.
As it moves towards becomes an online aggregator, Next is both developing more of its own new brands – including womenswear Own Denim and skincare brand Woah – and working with third-party brands to fully operate their websites and sometimes stores through its Total Platform business. Next is, for example, operating the Victoria’s Secret and Gap brands – both online and in-store – in the UK and Ireland through its Total Platform business, and has also taken an equity stake in the two brands’ UK franchises.
Next’s own third-party branded website, Label, which sells third-party brands through the Next website, has seen its sales grow by 69% over the last two years to £865m. Its Platform Plus offer enables it to sell goods stocked in clients warehouses to customers on a two-day delivery promise. It added 60 clients to this service over the last year, and is planning to add a further 40 in the coming year. Next ’s direct dispatch service now handles larger furniture deliveries. At the same time, it says is working to improve clients’ profitability through its site, and lowered its standard commission rate on fashion brands by 1%.
As a result of the changing shape of its business, Next may start to treat the Next brand as a client brand, and if so says it appears to make more sense to do that through the Total Platform business. Currently, the business says it makes a product profit of 16% on its own Next brand products, 9% on third-party products sold on Label, for which it handles marketing and aggregation as well as operations and fulfilment, and 5% on sales via the Total Platform business, for which it handles the operations and fulfilment.
Wolfson says: “The evolution of the group might, in hindsight, appear to have been part of a grand strategic plan. In reality, the way in which we have changed has been tactical – lots of individual initiatives taken in response to the opportunities and threats of a rapidly changing market. Our business ‘model’ was not conceived in the boardroom, but is the result of countless ideas conceived at every level of the organisation. It is an important distinction, because businesses that are the sum total of their initiatives and values are those that best harness the creative intelligence and energy of all their people.”
Looking ahead the Next group will now focus on product buying – through the “almost infinite space available online to extend our product offer into new categories” while making its design more diverse and appealing to customers of varied sizes and who are willing to pay varied prices.
It will continue to grow its Label business and its Total Platform business, which will continue to work with a growing number of clothing and homewares brands on a commission-basis. Some may also include taking an equity stake. And it aims to expand Next brand overseas sales, while defending the profitability of its Next brand stores, renegotiating rents where possible, or closing unprofitable stores.