Next chief executive Lord Simon Wolfson has outlined aims to push for lower rent bills this year, as the retailer seeks to regain momentum after reporting its “most challenging” year in 25 years.
Wolfson said leases on 240 of Next’s 528 stores will be due for renewal over the next three years, presenting a “big opportunity” for rent reductions and shorter lease lengths.
Next renewed 19 leases during the year to January 2018, trimming its average rent bill for these stores by 25%. Lord Wolfson is aiming for a 22% reduction – a £2m saving – from renegotiations on a further 29 leases this year.
“Obviously we’ll ask [for cheaper rents] but we [don’t expect to] get it on all of them,” he noted.
The move comes as high street retailers continue to battle tough market conditions. Among these, New Look is undergoing a CVA process while Debenhams, Moss Bros and Mothercare have issued profit warnings in recent months.
Wolfson said the UK high street would improve if the central planning system relaxed its rules on allocating properties by use and “let the market do its work”, adding that he was not sure the current structure is “fit for purpose in a dynamic, changing world”.
He explained: “What we will see is far more mixed use of property going forward – one of the inhibitors to that is the restrictions we have on usage.
“There are restaurants that would like to be shops and shops that would like to be restaurants. Let individual, hardworking, intelligent people work out how to best use their property. Then you’ll end up with a much more vibrant market than you would if you’ve got a small number of people [dictating where to sleep, eat or shop].”
Separately, Next plans to up its concession income by £5m to £13m in 2018/19. It is mulling whether to stock third-party clothing brands at its bricks-and-mortar shops, although Wolfson was quick to downplay the scale of a potential pilot as the “economics of it don’t look very exciting”.
“We already have a Lipsy store in [the Manchester Arndale centre] and are potentially looking at including other brands [there], but when I look at the economics of selling third-party brands in retail shops it doesn’t look very exciting. So I think we will try it, but it is much more likely we will have cafes and restaurants in there, than clothing concessions,” Wolfson said.
Next is negotiating with suppliers on opening a bridalwear concession and spa at its Arndale store, where it will also offer a car showroom on top of services including a florist and hairdresser.
Wolfson blamed “a difficult clothing market” and “self-inflicted product ranging errors and omissions” as some of the main factors driving Next’s sales declines in 2017, which were announced last week.
Total group sales dipped by 0.5% to £4.1bn in the year to January 2018 compared with the previous year. Retail full-price sales declined by 7%, contrasting with an 11.2% leap in online full-price sales.
Last year Wolfson admitted Next allowed its ranges to become too focused on more trend-led lines in 2016, while neglecting its more affordable “easier-to-wear” staples.
He said Next is now “much happier” with its ranges and expected its sales performance in the first half of 2018 to be “flattered” by its poor performance in 2017, affirming: “The balance of the range between fashion and heartland product was wrong, and [now] we think we’ve put that right.”
The team has vowed to “do more to harness and react to the design expertise within the business and its supply base” in the coming year, as well as extend its choice online.
Under inflationary pressure on the market, fuelled by the Brexit referendum, Next raised its clothing prices by 4% last year but expects to see a “more benign” pricing environment in the year ahead.
Wolfson predicts inflation in the clothing industry will “very quickly go back to zero” and the squeeze on consumer spending will reduce.
He observed: “I don’t think we are looking at a sparkling year – we’re not getting the bunting out – but the wider economic picture in the year ahead doesn’t look as difficult as the one we have just been through.”