Comment: Should Next win gold for multichannel retailing?

Next deserves a gold medal for its remarkable achievement in topping expectations for today’s Q2 sales and edging up its full-year profits guidance, despite a very difficult three months in fashion retailing.

The finance director David Keens certainly deserves a gold medal for reaching 21 years in office: he is the longest serving finance director in the “FTSE 100” index of companies. But the youthful-looking CEO Simon Wolfson has been with Next for 21 years (and has been running the Next brand since 1999), whilst product director Christos Angelides has been in his job since 2000 and Property Director Andrew Varley has been on the Board since 1990.

The extraordinary management stability at Next is an amazing contrast to the constant comings and goings at Marks & Spencer and should not be underestimated as a factor in driving the consistent success of the business. Next keep themselves to themselves up there in Leicester and have never been talked into mega deals and acquisitions and rash overseas moves by fast-talking investment bankers in the City.

The conservative style of management at Next is partly a reaction to the frenetic expansion in the mid-1980’s, which ended in tears, but Next have every reason to be grateful to its founder, the great George Davies, because he had the vision to see how multi-channel retailing could work. George Davies actually bought the Dillons/Preedy newsagent chains in 1987 as distribution/collection points for his nascent Next Directory mail order business.

If there is one thing, however, to point to as a reason for the success of Next, it would be its expertise in multi-channel retailing. Next has cleverly integrated its Directory catalogue into the online arm of Next Retail. Next Directory sales will top £1.2bn this year, versus nearly £2.2bn in Next Retail, but Directory is even more profitable than Next Retail, albeit the two operations are increasingly run as one seamless operation. And the combined operating margin of 18% is the envy of many.

As Next always say, the customers just see one brand. Some 60% of Directory returns are made through Next stores, 20% of Directory parcel collections are made through Next stores and 20% of new Directory customers are recruited instore. And the reason why that works is that Next have always had a very slick distribution operation, with a highly efficient warehousing network in the Leeds/Bradford area to service the business. Without that distribution expertise Next couldn’t have offered and promoted the highly successful “Order by 9pm for next day delivery” service last year. And Next are already planning further service improvements: by the end of 2013 customers will be able to get Sunday deliveries, get evening deliveries, order by 10pm at night and even get same day delivery in most of the country!

The City has got used to seeing consistently weak like-for-like sales in Next Retail, but even here things have begun to improve: in quarter two Next Retail LFL was only down by 2% ex online, despite the poor weather, which is not that much worse than mighty John Lewis, whose pure retail LFL sales growth in H1 was not much more than 2%, even with their electricals boom.

But Next wouldn’t be doing so well if it didn’t have the right clothing and homewares for its customers and it clearly has a very good understanding of the needs of the young families at the upper end of the mass-market that it targets. Contrast that with the struggles of Marks & Spencer as it tries to be all things to all people. And contrast the way that Marks & Spencer throws discounts and promotions at everyone with the way in which Next retain their pricing power, by limiting their Sale activity to short promotional bursts in mid-season and at the end of the season. If “pricing power” and “customer targeting” were Olympic retailing events, Next would probably also win gold.