Next sales plummet but CEO remains confident

Next has reported total sales fell by 34% and pre-tax profits by 97% in the half year ending July 2020, with the fashion retailer impacted by store closures during the Covid-19 lockdown, as well as the temporary closure of its warehouse and distribution centres which support its online operations.

Next said this performance “was more resilient than expected”, which it largely attributes to the continued success of its online business, which accounted for over half its turnover before the pandemic struck. In the six-month period, eCommerce revenue dropped by 14%, while profit on this channel fell by 28%.

However, the brand’s digital platform appears set to increase in relevance. Next noted: “Sales online have been significantly stronger since our stores reopened than they were before the pandemic struck. It appears that some lockdown habits have stuck, and we have been able to take advantage of this shift to online.”

The retailer is therefore planning to improve its online warehouse output to meet the expected ramping up of demand in the autumn/winter season. This includes realigning of staff shift patterns, increasing mechanical storage for reserve stock, and building in increased mechanical resilience to reduce points of failure.

In-store sales in the final six weeks of the period, as stores began reopening, were down by 39%.

In the trading update, Next also highlighted the recent launch of its new total platform website, which enables brands to sell their products online without expensive infrastructure costs.

Whilst delivering the results today, Lord Simon Wolfson, CEO of Next, outlined how this performance had significantly exceeded expectations: “The first half has been much better than we possibly could have hoped back in March and the company’s made a small profit,” he commented. “But the fact that we’ve made a profit in the first half isn’t really the important thing from a financial point of view, the most important thing is the fact that in all of our scenarios for the rest of the year we anticipate the group will be profitable and the balance sheet will end the year stronger.”

Discussing the ongoing consumer shift to eCommerce, he added: “In some form or other, we think this [Covid-19] will have accelerated the structural shift away from high streets and shopping centres into online.”