Next chief executive Lord Wolfson has said the high street does have a future as its online business grows, but only if property costs enable the viability of stores.
Full-price sales at Next grew by 3.1% to £4.2bn for the year to 26 January 2019.
However, falling retail sales were offset by a buoyant year for ecommerce. Online sales grew by 14.7% to £1.92bn, as a proportion of total retail sales, which fell by 7.9% to £1.95bn for the period.
Operating profit rose by 0.3% to £762m, but profit before tax inched down 0.4% to £722.9m.
Wolfson said online will continue to take a larger proportion of overall sales, but stores will still play a role – if they are affordable: “In the longer term we don’t see any change in the direction of travel – more and more sales will move online.
“It isn’t just driven by convenience but by choice. That won’t slow down. That doesn’t mean there is not a role for stores: 50% of our online orders are collected in stores and 80% of online returns are brought to stores. Stores still have value in an online world.
“The issue with stores is cost. If you look at retail rent rates, they are significantly higher than office or warehousing or residential. We do not have too much store space – we have too much rents and rates.”
Next had a “significant” rent reduction on properties that were up for renewal in recent years: 29% last year, 25% the year before and it expects 27% for the year ahead.
In a 15-year ”stress test model” Next said that if rents did not come down and stores became unprofitable, it would reduce its store portfolio to 150 profitable stores, and a further 120 unprofitable stores that would stay open to service online sales through collections and returns. Next had 507 UK stores in January 2019.
As part of the continued growth of online, Next plans to grow its third-party branded arm – Label – which delivered a profit of £66m on turnover £400m in 2018/19.
“We are anticipating continued growth because we are continuing to add new brands,” said Wolfson. “We want to slowly but surely become the first choice for people online. We can only do that by extending our offer.
“We also want to be the most profitable. We have reduced our commission rates for our brand partners. They see the worth in being part of our 500-lpus store network, as they are used for returns and collections.”CLabel UK’s full-price sales rose 29% to £80m year on year.
On Brexit Wolfson said Next was ready for a no-deal outcome: “We are ready for a no-deal Brexit – we were six months ago. The fact that Revenue and Customs has said it will give a transition period at the ports and wave through those who don’t have the right paperwork [allowing them to sort it afterwards] is very positive. Chaos at the ports was what we were most worried about, but there should be no reason for such delays now.”
In the event of a no-deal Brexit, Next estimated it would have a net reduction in tariffs of around £12m to £15m. The saving would arise because the proposed reductions in tariffs from countries outside the European Union would be more than offset by any increase in tariffs on goods it sources from Europe and Turkey.
Next said it would pass on cost reductions to customers by lowering pricing.
Wolfson added that consumer sentiment had not been impacted so far by Brexit uncertainty but admitted that could change in the coming months: “Despite the uncertainty, wages and employment levels are increasing.There is no evidence to say that Brexit is impacting either of these. We are in no way complacent. No one can say for sure what the impact on the consumer will be. In the short term there isn’t a great deal you can do.
“In terms of planning, the most important thing is to remain flexible and respond to changes in the market. You can’t plan for the effect on the consumer.”