Next’s success against retail gloom is due to its adaptation to online sales and price competitiveness.
Today Next announced its results for the first six months of the year, with 4.5% growth on the same period in 2017.
The company’s performance was underpinned by strong growth in online sales; to July 2018 the company increased online sales by nearly 17%. This more than compensated for retail sales – which account for 47.7% of revenue, down from 53.2% last year – fell by 7%.
At first glance, the news from Next is at odds with the British retailing industry. This year many companies have reported struggles including Mothercare, Debenhams and Marks & Spencer.
Next’s positive performance however is due primarily to two factors, internet utilisation and price point.
Next has a significantly developed online operation
Next was an early adopter of online shopping and has fully embraced the internet as a method of growth. Its previous life as a catalogue retailer had it well prepared for digitisation.
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Because of this it has had the infrastructure in place to deal with an increasing proportion of its customers shopping online. As British consumers are becoming both more frugal and less patient, having a strong online shopping system is key for Next retaining its position as a household name in British retailing.
According to the ONS, online sales as a proportion of non-food sales 14.3% in August 2018, a 17.3% increase on August 2017.
Next has managed to keep costs under control and remain price competitive
The second reason for Next’s surprising performance is its price point. British consumers’ spending rates have slowed in recent months.
Since 2016 annual growth rates have been low – 1%, 2.1% and 2.8% for 2016, 2017 and 2018 respectively – compared to higher rates earlier in the decade.
While Next’s net margin for retail fell from 9.6% to 7.6% between July 2017 and 2018, its online margins improved from 17.6% to 18.3%.
The ONS’ recent data shows that household spending grew 0.1% between January and March 2018, with housing costs the main driver.
Items such as clothing and footwear, which Next primarily sells, shrank by 0.02% in the quarter. With consumers spending less on clothing and footwear, the market is increasingly polarised.
Next has managed to keep its costs under control sharing rental spaces with concessions to share high rate costs and also drive footfall into stores.