Next reports October sales hike driven by online growth

High street mainstay Next has reported a full-price year-on-year sales increase of 2% for the three months to 26 October, but store revenue continues to decline.

Store sales were down by 6.3%, while Next’s online arm grew by 9.7% – continuing a pattern the company has analysed and explained in detail over the last 18 months.

Overall year-to-date full-price sales were up by 3.5% on last year, while profit guidance for the full financial year has been maintained at £725 million, which would represent a slight increase of 0.3% on 2018-19.

Next revealed October sales had shown significant growth, perhaps coinciding with the cold and wet weather in the UK prompting consumers to pull the trigger on their autumn-winter purchases.

The retailer said it believed strong sales in July (+6.8%) pulled forward sales from August, while September’s performance was “adversely affected by unusually warm weather”. This was followed by a significant improvement in October, when temperatures fell – and the expectation is that month-on-month sales growth for the rest of the year will not surpass October’s figure of 5%.

Next CEO Simon Wolfson has gone on record regularly over the course of the year to provide detailed economic analysis of the new forces changing the shape of the retail industry. He has said the cost of running stores, where sales are falling, is not yet offset by what the business can make online, where there is 11.1% growth this year so far but significant accompanying operating costs.

Referring to the decline in bricks and mortar shopping in September's half-year statement, Wolfson said the situation is not black and white for Next. Some 50% of online orders are sent to stores for click & collect, and 82% of returns – a central part of the Next online service – come back to stores.

“It is counter-intuitive, but the fact is stores have become an important part of our online service, though their rents are way out of kilter with the value they provide as collection and returns centres,” he noted.

“So, if stores are to remain open, retail rents must fall and fortunately that is exactly what they are doing.”

From an IT perspective, Next’s current areas of focus include expanding its credit system, Next Pay, as well as making enhancements to its cybersecurity function. The retailer is also one of several retailers migrating its data to cloud-based systems, and is continually seeking ways to improve logistics and warehouse processes.

As reported by Essential Retail, the retailer is running a ‘Back to IT’ scheme in 2020, encouraging people with IT skills who have been out of work for two years or more to undertake a six-month paid placement that could lead to full-time work within its technology team.