With Next powering ahead of its competitors, the high street retailer has revealed plans to prioritise quality over quantity. Ruth Faulkner explains why this is the right approach.
Last week Next reported solid performance for the first half of 2012, with pre-tax profits up 10.2% to £251m - yet another set of results that will leave many of its competitors behind. The high street retailer has for some time now been stealing market share from competitors such as Marks & Spencer, and it shows no sign of slowing down. Next also revealed it had improved gross margins by controlling costs, saving £1m in the first half of the year.
Discussing the results, chief executive Simon Wolfson revealed the next strategy for the business – to make decisions about clothing production based on quality, rather than price.
Next’s desire to improve the quality of fabric, print and design is leading to the retailer shifting its manufacturing back to Europe from the Far East. This is not happening wholesale – some production is being moved into the cheapest parts of the region, such as Bangladesh, Vietnam and Cambodia, which will still enable the retailer to compete on price in some areas – but for items such as knitwear and blouses, Next plans to return to parts of Eastern Europe and Turkey.
This is particularly interesting because Wolfson has long been a keen advocate of the more the cost-effective production afforded by the Far East. It suggests that sharp inflation in places such as China, coupled with the rising cost of transport, could be heralding a paradigm shift in the way high street clothing is produced.
“We can increase the importance on design and quality by being a collection-driven business rather than a price-driven business,” says Wolfson. He recognises that, even in the midst of a recession, customers want the high quality they can reasonably pay for.
Perhaps he also understands the damage that has been wrought at M&S, where a continual decline in quality has led to declining sales and could – if not managed soon – lead to serious reputational damage.
Quality is not subjective - one fabric supplier tells me that M&S is now using a fabric in a coat for the premium Autograph range that three years ago it refused to even use in its cheapest coats – and consumers pick this up, either consciously or subconsciously.
That is why Next is right to chase quality. When the prices offered by manufacturers in Asia start to compare with those in Europe, the retailer must find new ways to attract the shoppers. In womenswear at least, Next is already stealing market share from M&S. This strategy is almost certain to widen that gap.