It’s fair to say that within the retail industry expectations for the all important Christmas trading period weren’t optimistic given the myriad of troubles facing the industry.
Therefore when UK bellwether retailer, Next, posted their results covering the period from October to December 2018 stating an overall sales increase of 1.5% - there was general rejoicing with the Next share price jumping 11%, a rising share price isn’t something we have seen many retail businesses enjoy recently.
What lies behind the figures?
Next have been transparent (and realistic) about the challenges they are facing both industry-wide and as they develop their multi-channel offering to meet today’s changing consumer demands.
Whilst Next have highlighted the challenges they face in developing their online division - stating that every pound lost in full price store sales equates to 60p in profits whereas every additional pound spent online adds only 19p to the bottom line (as a result of stores representing fixed costs whereas online adding variable costs) - they have undoubtedly benefited from building their online offering on the back of having a successful directory mail order book.
Having run a successful multi-channel offering via the Next Directory, Next have, unlike so many of their competitors, a data-led understanding of their customer base and an appreciation of how different marketplaces can sit alongside and compliment each other. Their Next Directory heritage has allowed Next to build a stronger understanding of their customer than many of their high street competitors, enabling them to closely align their offering and compete with the direct to consumer new entrants. This knowledge also allows them to better understand the challenges of a variable cost base and the cost of returns.
Additionally their experience of running a multi-channel offering has also given Next a competitive advantage as they recognise the co-dependencies and opportunities offered by aligning different marketplaces - for example around 50% of Next’s UK online business is fulfilled through their high street stores - giving the business multiple consumer touchpoints and helping drive additional spend.
Another differentiating factor between Next and other high street retailers in the Christmas trading period is that whilst the fashion industry was discounting heavily - with over 50% of items being sold with a discount according to our tracking data, Next’s marketing strategy remains to avoid heavy discounting in the run up to Christmas. The stronger than anticipated results for the pre-Christmas trading period highlights that Next know who their customers are, and more than that, Next consumers know Next and have been conditioned to expect to pay full price other than during the traditional Next sale periods!
In recent times the strategy of adding third-party brands to the Next website has also helped to cater to the wider needs of the shopper and makes shopping on Next.com even more convenient.
Therefore as we start 2019, Next is definitely one to watch, not least as it benefits from its multi-channel heritage and experience of using data to remain in tune with customers but also because of their realistic approach to the issues lying ahead.
I’ll leave the last word to Lord Wolfson, CEO of Next who said the business expects to record sales growth of 1.7% for the year ahead, but warned that “any sales forecast made in January comes with a high degree of uncertainty”.
“This year uncertainty around the performance of the UK economy after Brexit makes forecasting particularly difficult.”
- Shop sales were down 9.2% year on year (Oct-Dec)Online sales were up 15.2% year on year
- Overall sales were up 1.5%
- Next reduced its annual profit forecast by £4m to £723m for the year to the end of January, down slightly on 2018. They also predicted that profits would slide again in 2020 to £715m.