Next reaches online tipping point

Online sales have reached a tipping point for Next, with eCommerce sales balancing out the decline of in-store sales.

Next CEO, Simon Wolfson, said the retailer is “just about making up for what we lose in retail, by what we gain online”.

At a media roundtable in central London today, Wolfson said online had a very strong performance in the six months ending July 2018, driven by improvements to the UK website and investments in digital marketing. Online sales increased 16.8% on last year to £892.3 million, while traditional retail sales declined 6.9% to £925.1 million. Online profits also increased 21.2% to £163.3 million, while retail declined 23% to £73.2 million. Total profit before tax increased incrementally by 0.5% to £311.1 million, leading the retailer to increase its full-year profit guidance by £10 million to £727 million.  

Wolfson admitted that Next’s online improvements were “catching up with the best in class”, but claims the website is now much easier to navigate, while plans to personalise the homepage and improve the search functionality are on the list for the year ahead.

Meanwhile, Next said it plans to spend 125% more on digital marketing this year, which will be offset by less spend on TV and print, as well as a reduction in catalogues. The pragmatic CEO was quick to point out that the retailer still prides its catalogue customers: “We still send out well over a million catalogues… but for those million customers it is definitely profitable and they’re our best customers.”

RFID roll out

Reacting to customers increasingly going online to buy their clothes, the clothing retailer is currently in the process of deploying RFID across its store estate, the rollout is on track for completion in October.

Wolfson said RFID is enabling Next to offer further click & collect options for customers, the first being a live click & collect model, similar to Argos, where a customer can reserve an item and pick it up immediately in store. While Next is keen to offer the service, Wolfson said he doesn’t see it being hugely popular as “most customers can wait a day”. Next is also using its accurate stock inventory to fulfil online orders from stores in cases where the stock has run out in its warehouse.

“We are now allowing online customers to purchase that stock in the knowledge that we can fish it out of the store and get it back through our distribution network and to them in four days.”

He said these functionalities can’t happen unless the retailer knows exactly where its stock is. “Even if you are counting stock pretty much every day you can’t be sure it’s there, but RFID allows that and also enables you to find it faster,” he explained. “We would count our stock anyway and using RFID is much cheaper than manually scanning every barcode.”

Wolfson also pointed to the economics of its annual fulfilment pass, Next Unlimited, which has 380,000 customers paying £20 a year for unlimited delivery and returns. Unsurprisingly, these customers spend more, but they do so more frequently and in smaller quantities which drives up delivery costs. “The demand goes up faster than sales because the returns are slightly higher, but the incremental sales still make it possible to do unlimited with the added benefit of keeping customers active.”

The high street

Reacting to the future of the high street, Wolfson said this shift to online will slow down at some point, but he can’t predict the speed or end point of the change.

“The one thing we can say with some degree of certainty of the high street, is that the people in it will still be wearing clothes.”

Next has recently been partnering with a number of third-party non-competitive brands to utilise its physical space and entice customers back into the store. Its Manchester Arndale store has seen a florist, prosecco bar, café, car dealership and barbers take up space and Wolfson said some partnerships have worked and others have not, refusing to single out specific businesses, but noting that travel agents, cafes and stationary shops have worked the best so far.

At the end of its half-year financial report, Next set out a detailed Brexit strategy stating they are prepared for all eventualities of a deal or no deal. Wolfson said where a problem could arise is from external factors which Next call “indirect risks”, such as ports coming to a standstill following a no-deal Brexit next year.