Next sales boost driven by online growth
Written by Hannah McGrath
Full price sales at Next were up 4.3 per cent in its half year results, driven by 12.6 per cent growth in online sales, to more than £1 billion.
The High Street stalwart reported brand total sales up 3.8 per cent in the six months to 31 July, compared to the same period last year, with declining footfall making for a drop in store sales of 5.5 per cent to £874.3 million.
Growth was driven largely by the success of Next’s £500 million online business, launched in 2015, which sells Next brand clothing and homeware, in addition to clothing from third party retail brands including Asos and Topshop.
Chief executive Lord Wolfson said the model - which effectively allows other brands to compete against Next’s own products - has “radically changed the way we do business”. Hosting the competition was accepted as “the price we pay for developing a leading aggregation business”, he wrote.
Total group sales for the half year were £2.05 billion, up from £1.9 billion for the first six months of 2018. Pre-tax profits were up 2.7 per cent to £319.6 million. As a result, the company is maintaining its full year guidance of £725 million profits before tax.
Wolfson set out the retailer’s objectives for growth as it continues its shift to digital channels, with more than more than 50 per cent of sales now made online and through Next’s associated finance business.
The report forecasted that by 2020 nearly a quarter (24 per cent) of all online sales for Next will be generated by third-party brands on the Next online platform, with Next products accounting for 76 per cent of online sales. This compares to a Next/third party split of 89 per cent to 11 per cent of sales in 2015.
In addition, Wolfson said the retailer was upbeat about an enduring role for the UK High Street as consumers shift to shopping online. The report highlighted the the fact that half of online orders are delivered to bricks and mortar Next stores as customers choose the option of Click and Collect, while 82 per cent of Next returns are made through its store network.
However, the retailer said that rents for physical stores would need to continue to fall in order to justify retailer keeping them open as part of their business model.
The report said the current business model, which is increasingly reliant on online revenues, made it possible for Next’s current structure to “withstand a prolonged and severe downturn in retail sales”.
Half of its store lease commitments are due to expire within the next five years, which would allow the company “flexibility to re-negotiate and restructure our store portfolio”, the report said.
Wolfson said Next’s online model has helped it to grow despite profound changes in the UK retail landscape.
“The online shopping revolution is not just about home delivery or even price, it is about the explosion in choice it gives consumers,” the report read.
“In addition, the barriers to entry for new fashion brands have never been lower. In today’s world, new brands can sell their products through third-party websites without any investment in expensive retail, warehouse or online infrastructure.”
It added that the online revolution had opened up a “choice of goods, breadth of sizes and selection of brands that no single High Street could ever contain” and “however uncomfortable this change may be, it is important to keep in mind that ultimately it is great for the consumer and so in the long run it should be good for our industry.”