Next e-sales overtake stores, but shops remain key, firm expands abroad
Next was cautiously upbeat on Thursday as it reported half-year results and, significantly, its online sales overtook those from its stores by quite a wide margin.
Its Next brand full-price sale rose 4.3%, and even with markdowns included, sales rose 3.8%. Total group sales were up 3.7% to £2.058bn and group profit before tax rose 2.7% to £391.6m.
Not that it was all good news. Retail division sales actually fell 5.5% in the six months to July, hitting a low of £874.3m. But revenue from its finance operations rose 9.9% to £134m and online really impressed with a 12.6% rise to £1.005bn.
Looking only at full-price sales, the online figure was £880m, up from £786m a year earlier. And of that, £469m was accounted for by the Next brand itself, £199m by its UK Label operation that sells third-party brands, and the rest by sales overseas.
While the online figures might seem to show unbroken progress, the company did say that it has seen “growing pains” in its online ops and “material strain on our warehousing infrastructure”. But it’s addressing these issues and the online business is “highly profitable” with a net margin of 17.6%, albeit one that fell year-on-year due to growth in Label and the overseas unit. These both have lower net margins than the own-brand UK operation.
RETAILER BECOMES E-TAILER?
Of course, the big story here is that tilting of the balance towards online. Exactly a year ago, the firm’s sales were £925.1m through retail stores and £892.3m online, The £874.3m/£1.005bn split now means that perhaps we should start calling Next an e-tailer that also happens to operate stores!
So does this mean that the company will downgrade the importance of its store portfolio, assuming that sales there will continue to decline? That’s unlikely. Next boss Simon Wolfson has frequently defended the stores and pointed out their key role not only in selling products but in acting as a showroom and a click & collect facilitator. In fact, 50% of its e-sales are delivered to customers via its shops and 82% of its returns are processed through the stores too.
But while he’s committed to physical stores, he clearly wants to see them costing less. “If stores are to remain open, retail rents must fall and fortunately that is exactly what they are doing,” he said.
The company is in the fortunate position of around half of its leases expiring in the next five years so it has the flexibility to exit underperforming sites and negotiate new rent deals.
ROBUST BUSINESS MODEL
He was upbeat about the firm’s survival chances in a retail world where few retailers can be said to be safe from sudden market downturns and an evolving environment.
He said the firm’s business model is “robust” and “capable of surviving and thriving in an online world”, both in its domestic market and abroad.
And that latter comment is key as the company has bold global ambitions, although it’s not going to risk rapid over-expansion and is keeping any announcements on its international plans quite low-key.
The firm’s online platform would be the key launchpad for any international growth and that platform, as the figures above show, is clearly in good shape. As well as the Next brand, it also sell labels like Ted Baker, Calvin Klein, Superdry, Nike, Adidas, the own-brand Lipsy, plus beauty brands and much more.
“Just as new brands have challenged Next’s incumbency in the UK, we are now challenging and enhancing traditional retail landscapes overseas,” Wolfson said. “In overseas markets, we are the new kid on the block,” he said, adding that the company is selling both through its own website and through overseas third-party aggregators.”
The firm’s online full-price sales overseas rose to £212m in the latest period from £176m a year ago and it will be interesting to see how this figure progresses in the years ahead.
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