Next faces up to new multichannel challenges

Fashion and homewares retailer Next faces a number of challenges to growth in the coming years, as it aims to perfect the balance between its stores and its online and catalogue arm Direct.

A trading statement released by the retailer on Tuesday showed that Direct sales rose 8.3% in the first half of 2013, but like-for-like retail sales in its network of stores were down 0.9% during the same period.

It is a contradiction in performance that retailers across the globe are experiencing, but in recent years Next has often been one of the leading lights in finding growth and incorporating its stores into a multichannel model. Direct sales may be outperforming bricks and mortar stores, but it cannot be ignored that its order and collect offering – which is facilitated by its stores – is one of the key drivers behind the rise in Direct sales.

George Scott, consultant at retail research agency Conlumino, commented: “The Direct online and catalogue business remains the jewel in Next’s crown and, coupled with its best-in-class fulfilment capability, continues to make the larger contribution to sales growth.

“With Direct sales up 8.3% for the first half, Next continues to gain traction with increasingly demanding consumers; its introduction of later than typical cut-off times for next-day delivery, epitomises its ability to deliver strong customer promises.”

Earlier this year, the cut-off for the retailer’s standard next-day delivery to UK homes was moved back to 10pm, while next-day delivery to stores now offers more attractive pricing and allows collection after 12.30pm (as opposed to 4pm).

Initiatives such as these have contributed to Next typically being viewed by analysts as a well-run business, and its CEO Simon Wolfson has often been early to predict future trends in retail, adjusting the company’s operations accordingly to maintain success. But what obstacles to growth does Next now face?

Next Direct brought in £1.2 billion in sales in the year to January 2013, which was up 9.5% on the previous year, while profit at the online and catalogue business was £302.1 million – an increase of 15.1% year on year. Based on these figures, it would seem that this area of the business still has plenty of potential for growth.

Competition is set to become fiercer, though, with the more established multichannel players widely anticipated to find growth more difficult to achieve. Planet Retail eCommerce analyst Malcolm Pinkerton told Essential Retail that the online shopper population in maturing markets is now reaching saturation point, meaning growth will come from getting existing shoppers to spend more, “but the choice of how and where to shop is so much greater”.

And Conlumino’s Scott has suggested that multichannel standards are shifting among Next’s rivals and causing “a threat to its traditional competitive advantage”.

“Department stores including Debenhams, House of Fraser and John Lewis continue to develop own label fashion and homewares coverage supported by investments in multichannel fulfilment,” he explained.

“Closer to home, while old rival Marks & Spencer has yet to demonstrate a compelling resurgence in its core fashion lines, the retailer’s gradual return to form will offer competition for future market share gains.”

Next’s international online business contributed £10 million to profit in 2012, and it was estimated in January that its overseas online business would grow to at least £70 million, adding a further £4 million to company profit. At home and abroad, it appears eCommerce and multichannel development continues to be an essential focus for Next in the months ahead.