The changing face of Next Directory

A significant section of the half-year results published by clothing and homeware retailer Next, on Thursday, was dedicated to what it described as "The changing face of Next Directory".

It was a follow-up to the various eCommerce, tech and infrastructure investments announced by the high street retailer at its year-end in March, and the statement indicated some of the progress the company has made in this area of the last six months.

The areas Next targeted for improvement included, stock availability, mobile site and apps, online marketing, website personalisation, distribution of catalogues and delivery services. So how has it fared so far?

Improvement in stock availability, the launch of a new mobile site and the roll-out of online marketing campaigns were said to have already had a meaningful impact on sales performance to date, while the other target areas are dependent on systems developments due for delivery in the year ahead.

Next has identified the critical importance of its Directory arm, with sales and profitability in this department continuing to rise over the six months to July 2016 while full-price store sales and the bottom line have dropped.

In the results statement, Simon Wolfson, Next CEO, commented: "In March we predicted a challenging year and this has been reflected in our first-half results. 

"Although total Next Brand sales were +3% ahead of last year, full price sales were down -0.3% on a comparable week basis. Directory has performed significantly better than retail mainly as a result of improved stock availability, enhanced website functionality and continued growth from Label and overseas."

According to this week's results statement, buying more stock meant Directory availability improved – although it did contribute to a "significant increase in markdown" at the end of the season. Now in place is a new stock control system, which aims to avoid so many price reductions at the end of the second half of the year.

Having been behind competitors when it comes to mobile retailing - although Next's corporate website has been mobile-enabled for some time - the first half of the year saw a consumer-facing mobile site launched, compatible for all devices. The conversation rate of mobile shoppers has risen by +16%, from 4.9% to 5.7%, since the launch of the new portal.

Functionality of the mobile site focuses on search, select and ordering, but over the next 12 months there are plans to add a catalogue browsing mode, enhanced account management, order tracking and improved payment functionality. Next willl also enable the purchase of sofas, furniture and flowers through the mobile site, in addition to clothing.

Next's iPhone and iPad apps have been upgraded, too, and they are both delivering conversion rates of around 10%, with all Next apps currently accounting for 7% of Directory turnover.  During the second half of this year, Next is expected to launch an app for Android phones and tablets.

During the trading period in focus Next significantly increased its online marketing spend in the UK, and there is another £8 million expected to be splashed out in this area in the second half.

It is clear that Next is not investing in general online advertising campaign to recruit shoppers without a plan, but is following a more targeted approach. This is evidenced in its commitment to personalisation that has already seen new software installed allowing the business to use customer information, such as product preferences and purchasing history, in third-party advertising, while a personalised email communication drive has begun, although its is acknowledged that the business has "much to learn" in this space.

"The personalisation of our website represents the biggest challenge in our programme of improvement.  This endeavour requires us to develop three new capabilities," explained Wolfson, who listed the requirements as having a comprehensive customer database, new display software and an understanding of which personalisation techniques are most likely to increase sales.

Next is clearly in the early stages of following this more modern, digitally-enabled customer recruitment and retention strategy, but there is no doubt it has been identified by the organisation as an area of considerable opportunity in the coming years.

Wolfson has noted the progression of its Directory business depends on planned systems development, which is expected to be completed by the end of 2016. UK and overseas webistes have already converged and, in October, Next's deliveries will be available for pick-up in 5,000 parcel shops across the UK. Like the majority of established UK retailers it is the ongoing modernisation of legacy systems that means the addition and adoption of multiple new services is no speedy procedure.

All of this development comes after operating profit for the half-year period was down by 16.8% to £133.9 million and with Wolfson hinting at potential price rises for consumers in the future, while referencing the impact the drop sterling value has had on the business. 

Kate Ormrod, senior analyst at Verdict Retail, said: "Next's strategy is focused on ensuring it is well placed to achieve growth when trading conditions improve, however as we expect consumer spending to remain restricted for the next few years, Next must ensure it does not get ahead of itself.

"It plans to have a more responsive buying pattern, as well as investing in improving design and quality, helping to justify any potential price increases next year. Directory is also a focus, with attention on customer acquisition, driving spend of existing customers, increasing personalisation and improving the delivery proposition."

She added: "Next's click & collect service is highly competitive, unsurprising given the investment it has made, however planned investment in other delivery options, including the launch of a pick-up, drop-off service and two-hour timeslots for home delivery will offer shoppers more choice and convenience, on par with the likes of John Lewis and House of Fraser."