‘Next’s membership of retail’s billion club is likely to be longer-lived than some’

Fashion powerhouse Next is about to join a very select group of retailers – those that have notched up annual profits of £1bn.

Few have hit that magic number. Marks & Spencer made history by becoming the first to do so back in 1998. It has only repeated the achievement once in the years since.

Boots too – in its days as Alliance Boots – managed to break the billion barrier more than two decades ago.

Tesco leads the pack by some distance. Having first posted earnings of £1bn in 2001, despite some big challenges in the intervening years, it rebounded and last year reported a stonking £2.29bn. It’s conspicuous by its success in continuing to grow, unlike others whose membership of the billion club has proved more fleeting.

No matter how much complexity materialises it adapts to changing conditions and expectations – whether shopper habits, technology or supply chain – Next is able to maintain relentless focus

So, it prompts the question: how has Next – which revealed the likelihood that it will make £1bn this year in a quarterly update today – got there, and can such profitability be sustained?

There are many reasons for Next’s success. Paramount perhaps is its ability to execute well. No matter how much complexity materialises it adapts to changing conditions and expectations – whether shopper habits, technology or supply chain – Next is able to maintain relentless focus.

That means it has avoided becoming, in chief executive Lord Wolfson’s phrase, a “corporate blob” of confused priorities and responsibilities, particularly as it has made acquisitions such as Reiss and Fat Face.

You can see that focus in the relentless attention to perhaps the most important thing of all, the product it sells. The “ability to develop outstanding product ranges” was cited by Wolfson in last year’s prelims as one of two key capabilities “that ultimately power the business”.

Next is by no means always the cheapest apparel retailer, but its quality and style are rarely in question, and that has allowed it, for example, to openly pass price increases on to the customer when necessary without prompting a mass walkout.

The second key capability Wolfson flagged was “the creation of highly effective infrastructure to sell and distribute that product”. There’s much talk of ‘seamless’ omnichannel ambitions in retail, or now of ‘unified commerce’, but it’s all pie in the sky unless executed skillfully. Next has proved a past master, whether in its click-and-collect capabilities through to the development of the Total Platform business.

International online was the star of the show in Next’s update – up 20.4% versus 7.8% online in the UK

Wolfson was on the money when he noted that “developers and engineers can begin to see their engineering and development as an end in itself – software and warehousing improvements for the sake of excellent software and warehousing”.

At Next though, investment and development must deliver on at least one of four objectives: driving sales growth, improving customer service – especially speed and accuracy of deliveries – cutting costs, or enhancing services. You don’t need to be a tech wizard to understand that, but tech wizards know exactly what is expected of them.

Next’s cool-headed management style, exemplified by Wolfson, means it is not afraid to disrupt itself. He was among the first retailer leaders – maybe the first – to say he would happily allow his online business to cannibalise store sales because if he didn’t they’d be cannibalised by a competitor. But nor did he throw the baby out with the bathwater. Shops remain a key component of Next’s business, their returns of course clearly measured.

While some retailers trumpet transformation as an objective, Next gets on with it in its own quiet way with an eye on the long term. At present, for instance, the retailer is putting much energy into building its international business – an objective made possible by its continued attention on the fundamentals. International online was the star of the show in Next’s update – up 20.4% versus 7.8% online in the UK – and there is little reason to think that it cannot continue to grow.

Next is open about when it benefits from the weather, as in the last quarter when “the strong performance was driven by the early arrival of colder weather this year, versus an unusually warm September and early October last year”.

However, its enduring success is a testament to its quiet, unremitting focus on what matters. And that means the probability that profits can grow, rather than retreat, from the legendary billion is now likely to be achieved.