What next for Next? Fast trend reaction but a tough year ahead

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Next SS16

Last year was tough for retail so how did Next do? If not a spectacular performance it was a respectable one in the circumstances. And a big cultural change as far as the company’s approach to buying product will be key to its performance in the future.

But more of that later. Let’s get the ‘evidence’ bits over first so we can see just how well Next performed in the 12 months to January 2016 in an environment that devastated some weaker rivals.

If you don’t like too many stats, look away now…

Detailing its figures today (on a 52-week comparable basis despite last year being a 53-week year) the company said, Next brand full price sales were up 3.9%. Underlying profit before tax was up 5% to £821.3m and underlying Earnings per Share (EPS) were up 5.4%. Net profit rose to £666.8m from £634.9m in the 53-week period with the extra week accounting for £14.8m of that increase.

Full-price sales were slightly ahead of the guidance of 3.5% issued in March last year. And profits advanced more than sales, mainly as a result of better bought-in gross margins in the first half.

Actual sales for the online Next Directory business rose 8%, Next Retail rose 1% and overall sales were up 3% to £4.1bn.

Now for the interesting bits…

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Next SS16

Next said the year ahead will be challenging. No, wait, Next said “the year ahead may well be the toughest we have faced since 2008.” profits could fall up to 4.5% as consumers move spending away from clothing towards eating out and travel.

Ouch. So upbeat wasn’t exactly the tone of the results announcement. Like all fashion retailers, it’s still dependent on the weather, and the wobbly economy is key too. Plus events of recent days show how factors like terrorist attacks can undermine normal consumer behaviour.

But its objectives remain focused on expansion rather than just battening down the hatches.

So, about that new approach to product. Next is continuing to focus on improving aspects of its buying and design process and is now beginning to buy product in two very different ways. The new approach may seem like a no-brainer but for a company of Next’s size, it’s really big news.

The first of its two buying approaches is its more traditional process, what it calls the long game, which involves a nine-month buying cycle and focuses on long lead time product, made in locations far from its UK base (mainly Asia). Secondly, there’s short game buying, which focuses on a more spontaneous reaction to new trends typically sourced from nearby territories.

For the long lead time product, emphasis is on the development and direct sourcing of better fabric, yarns, trims and embellishment. This involves more work at the front end of the buying cycle.  It also means buying fabrics and yarns before Next knows exactly what garments they will be used for. It expects these improvements to begin to be reflected in its ranges from AW16 onwards.

For short lead time product sourced closer to home, Next is working on accelerating the decision-making process, encouraging its buying and merchandise teams to make more decisions outside formal selection meetings. This method of buying represents a big cultural change and the company said it will take time to implement properly. “However the early signs are positive and we expect ‘short game’ product to steadily increase as a percentage of our offer as the year progresses.”

So what are the rest of its priorities for the year ahead?

  • To develop new online advertising and email techniques for recruiting new customers and reactivating existing customers for the Directory business.
  • To improve the presentation of its website with particular reference to mobile devices.
  • To defend, develop and promote its credit business.
  • To rationalise and expand the distribution of its printed publications.
  • To continue to invest in and develop Next overseas through investment in new advertising and promotion techniques and the development of the existing delivery hubs.
  • Continue to develop LABEL through the addition of new key brands, improving stock availability and stock control.
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Next

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