Next steps for clothing retailer

Clothing business Next’s full-year results perfectly highlight the challenges that established retailers face in balancing the ongoing decline of a large stores portfolio alongside the handling of a growing online division. 

While sales at its stores business declined by 7.9% for the year to end-January 2018, its online Directory operation grew by 9.2%.

Simon Wolfson, CEO of Next, says: “Next is two businesses where Directory has rapid growth - and requires investment - while the stores are in decline and it’s about managing down the business and not losing profits.”

Such is the issue around the stores portfolio that the company has revealed detailed ‘stress tests’, which Daniel Lucht, director of Research Farm, says: “This screams of them being over-shopped. In time they will have to close poorer performing stores. It’s clearly cottoned onto this, which is good.”

For starters, Wolfson is actively renegotiating leases on its stores and over the past year it has delivered rent reductions of 25% on 19 outlets and with as many as 240 more stores coming up for lease renewal over the next three years there is a massive opportunity to dial down its cost base.

Next has also taken the unusual step of introducing a variety of concessions into some of its stores to mitigate the declining like-for-like sales. “At the Manchester Arndale store we’ve introduced as many concessions as possible [including a florist, prosecco bar, restaurant, children’s activity centre, cafe, card & stationery shop, barbers and shortly a car showroom] to see what works. We’re just trying to make a profit,” he admits with refreshing honesty. Next is certainly not hiding behind an array of excuses and is instead being open about its challenges. 

In the year ahead Wolfson says 98 concessions will be opened across the company’s portfolio of stores. Meanwhile Next has over the past year boosted its investment in technology on the Directory side with an additional £11 million invested in 2017 on digital solutions that takes the investment to £40 million. He confirmed that a similar level of capital expenditure on digital will be maintained in 2018.

Interestingly the Next approach to these investments involves it buying the same solutions that its online rivals have proved works. “We’ve a significant level of commitment to third-party software and have no intention of relaxing this. We’ve learnt a lot of lessons and we’ve just gone for software packages that work for our online competitors. It saves time,” he explains.

The focus for the year ahead will be to integrate the online operation more closely with the stores’ systems. Although he says “nobody has a better level of integration than us among the other established retailers” this does not stand for much, according to Daniel Bobroff, CEO of Coded Futures, who says they are all well behind the likes of Asos.

Bobroff questions the culture of Next and its willingness as an organisation to have an open dialogue with third-party providers of technology: “I don’t find them open. I don’t think there is a culture of innovation and a willingness to disrupt its own thinking.”

On this basis he says Next needs to embark on the journey of greater innovation in order to compete with the likes of Asos.

One of its efforts in this direction comes with its ‘find in-store click & collect’ solution. As much as 10% of the stock its customers attempt to order online is sold out so it has launched a solution to enable customers to locate this stock in its stores. The next stage of this involves a service to enable them to purchase these goods and be able to collect them in a store - within one hour.

Fundamental to this is real-time visibility of stock, which at the moment Bobroff says the accuracy in-store will likely be around 70%. To address this, Wolfson reveals that Next is moving from manual scanning of goods in-store to using RFID technology, with the system rolling out from July through to October.

The company is also experimenting with an artificial intelligence search engine, but Wolfson was unwilling to give any details of its progress to date. He suggested that he will know more in three months’ time.

According to Chris Griffin, founder of Anatwine - that was sold recently to Zalando, these initiatives reflect positively on the prospects of Next and highlight his view that Next is as challenged as any other high street retailer but with Wolfson at the helm he believes the business is not afraid to make the necessary changes.