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Next profits exceed M&S

Next’s online proposition and its rigid Sales strategy have been heralded as the main factors behind its growth, which have seen its profits overtake Marks & Spencer’s for the first time.

Next’s pre-tax profits, which increased 11.8% to £695.2m in the year to January 25, have put Lord Wolfson’s chain ahead of M&S, whose profits are forecast to fall to £628m in its final results on May 20.

Callum Butterfield, retail analyst at BDO, said Next’s online offering was integral to its success. “Next was one of the early adopters of multichannel and getting its systems aligned and this has really positioned it well during the tough times. It is the leader and others are playing catch-up.”

He added: “It has also been so strict on its discounting strategy. It has never discounted outside of the traditional periods whereas M&S did loads of discounting before Christmas. If you discount consistently then you will condition your customers to wait for the discounts.”

One former Next employee also highlighted the discounting strategy as a major plus point. “Next only marks down its stock two to three times a year whereas at the last count M&S had 14 different Sale events a year.”

Staff costs at M&S could also dent profits, with the retailer employing double the number of directors. “There is a lot of fat in the cost base when it comes to people, whereas Next is quite lean,” the former employee said.

Next emerged as one of the high street winners over the Christmas period with total sales up 11.9% between November 1 and December 24. Next Directory sales, which covers its catalogue and online arms, surged 21% for the period following increased confidence in online deliveries. As a result of these rises Next increased its full-year profit guidance, which was previously £650m to £680m.

M&S chief executive Marc Bolland - who in January praised Next for its Christmas performance - blamed his business’s poor third-quarter performance on bad weather and a “highly promotional market”, with general merchandise like-for-likes for the 13 weeks to December 28 falling 2.1%.

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