Next has announced its half-year results with a whopping 92-page document, which sets out how the weather has impacted its sales, its international achievements and ambitions, where future growth will come from and even what it looks for when considering buying another retailer.
For the time-poor, Retail Week has extracted four of the most interesting charts from today’s results that help paint a picture of what’s next
Next brand full-price sales versus last year
The villain in all retail success stories is, of course, bad weather.
Last year, fashion retailers enjoyed an exceptionally warm and sunny Q2, but this year’s drizzlier summer saw sales for the Next brand drop by 0.9%.
According to the retailer, the underperformance was because its ranges did so well last year, meaning shoppers didn’t feel like topping up their wardrobes quite so much when the weather was poor. It added that the sharp recovery seen in the last six weeks into September confirmed that theory.
Next admitted that it would be a mistake to blame poor summer weather for everything and that doing so would mean missing valuable lessons.
Most notably, it saw success when it achieved three criteria in its fashion ranges: newness (rather than relying on last year’s bestsellers), a wider breadth of choice and better-quality garments with improved fabrics.
Criteria for investing in new business
For a retailer with an immense appetite for buying up others, particularly those that find themselves in financial distress, this year has been quieter for Next on the acquisitions front.
However, the business has been connected to several retailers looking for buyouts this year – Ted Baker and The Body Shop, to name two.
Next cannot breach confidentialities and reveal to shareholders exactly why it did not follow through with each deal it was connected to – and the two businesses mentioned above may not be any of the anonymised companies in the chart – but it did outline the criteria it requires companies to meet if it is to buy them. These are:
- The business must have a great brand.
- It must have great management (or Next must have a team ready to take the reins).
- Next must be able to add value through Total Platform or in some other way.
- It must be the right price.
Elaborating on what he considers a “great brand”, Next chief executive Lord Wolfson said: “It’s about the brand having a point of view that customers identify with and that they see as providing them with something different from what the rest of the market provides. That, I think, is what a great brand is.
“And, also, that there’s a sense within the organisation itself of what that brand stands for. So, both in terms of what the consumer sees and what the people who work there see, that they have a sense of identity.”
Cumulative full-price sales growth versus last year
This chart probably best illustrates Next’s improved focus on its international strategy by showing just how volatile full-price sales are in the UK and the impact they have on its overall sales growth.
Next grew online sales overseas by 14% during the period, far exceeding its expectations, and it outlines international sales as one of three target growth areas alongside new brands and its online services business Total Platform.
Wolfson said: “We’re not concerned about the overall future of the brand in the UK; we think it will continue to grow, but we think opportunities for growth are constrained by its size. And that’s why, in the UK, we’re looking to grow through additional brand licences, third-party brands and the tech platform.
“Where the opportunity is for the Next brand, we believe, is overseas. Virtually all of that growth that you’re seeing overseas is the Next brand.”
Overseas full-price sales
This chart illustrates how Next sees that growth in the short term and, according to Wolfson himself, what it shows here isn’t typical.
A larger sales base and rising margins would be expected to reduce growth in percentage terms, but that is not happening here – nor is that what is forecast to happen.
“It’s unusual for businesses to build their margin and their topline at the same time, but that’s what we think we’ll do this year,” Wolfson said.
Next’s reasoning for this is that, thanks to the likes of TikTok, Netflix and other global entertainment and social media platforms, consumers are being exposed to international fashion trends more regularly and therefore tastes and markets are converging more quickly.
This trend is more pronounced in certain territories and it generally performs well in more affluent countries that are close to the UK – for example, it performs better in northern than southern Europe.
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