Next chief executive Lord Wolfson said he is “concerned” for the future of the high street as competitors struggle to survive, but said the company’s online “head start” has helped to boost sales.
The retailer’s group profit before tax grew by 2.7% to £319.6m in its half-year results to 31 July. Meanwhile, full-price sales were up 4.3%. Brand total sales, including markdown, were up 3.8% on last year. In-store sales fell 5.5% to £874.3m on the same period in 2018, and online sales grew by 12.6% to £1bn.
Wolfson cited the “head start” Next had with its online business, moving from a catalogue model, for the retailer’s successful performance.
“We were incredibly fortunate that we started this millennium with a mail order business because a mail order business has, in essence, all the assets of online – other than a website – that you need for online trading.
“We had the delivery network, we had the systems, we had the warehouses and the customer-base. Because we had that base from 1995 onwards, that has been enormously helpful to us over the last 20 years.”
The Next website launched in 1999 and cost £7,000 to build and launch.
Next’s Label business, which stocks third-party brands, had a 26% increase in full-price sales during the half. Total sales including markdown were up 29% compared with 2018. The retailer expects full-price sales in the second half to be up around 13%. The slowdown is mainly a result of errors and stock shortages in Lipsy ranges.
In March Next launched a marketplace model for its brands called Platform Plus. It allows customers to order stock on Next Label directly from the brands’ warehouses to be delivered through the Next network. As of August, it has four clothing brands operating on Platform Plus and it plans to add at least 10 more later this year, with more to follow in 2020.
At the end of the half Next had 499 stores, and Wolfson admitted that he is worried by the number of high street store closure: “Of course it’s a concern, but it’s a concern we’ve tackled head-on. It’s not going to be painless and we’re not through the woods yet, but with the extent and speed that rents are being cut and the relatively short-term that leases are being offered, we can see a way of managing that decline in such a way that the group continues to prosper.”
For the year ending January 2020, Next expects to renegotiate 37 leases, achieving rent reductions of 28% and renewing for an average lease term of 4.2 years.
“The conversations we’re having with landlords are matter-of-fact, not confrontational. At the end of the day, there’s a price at which we can afford to keep shops open and a price at which we can’t, and we give that option to the landlords.
“I feel badly for landlords in a way because the rents being so high is not the fault of retail landlords, we have built rents up to where they are and we’re now paying the price of that. As and when leases are coming up for renewal, we’re offering the landlord what we can pay to keep the shop open for the duration of the term they’re offering us.
“Firstly, average rents are coming down by about 28%. Secondly, on average we’re taking a four-year term of lease. So, we’re reducing both the risk and the costs.”