In depth: NEXT outlines its strategy for a 'new era'
NEXT has revealed yet another period of positive growth as the high street giant sees annual profits rise and outlines its strategy for continued growth amid a challenging economic environment that has impacted so many businesses.
TheIndustry.fashion takes an in depth look at the retailer's strategy as it steps into a "new era", with detail on its results and commentary from a number of industry experts.
The strategy
NEXT has outlined three new avenues of growth, including strengthening the NEXT brand overseas, the development of new brands and licences, and the generation of revenues from Total Platform and its associated equity investments.
"These all give our product skills and our infrastructure the opportunity to play to a wider audience. And in doing so, we have the potential to create a huge amount of value for our existing customers, new customers and third-party clients," it said.
To achieve this, NEXT has a number of strategies in place to continue on its growth journey in 2024 and beyond...
The company believes it can further strengthen the NEXT brand in the UK and internationally by "backing newness with conviction, giving its customers genuine breadth of choice, and delivering better, more aspirational levels of quality".
As part of this, NEXT aims to deliver this year’s "most inspiring, most relevant" trends while harnessing its wide product portfolio to offer a breadth of style, fits, colours, fabrics, prints, textures, looks, and prices for its "increasingly diverse" customer base.
Growth will also be driven by a particular focus on digital marketing and enhancing the retailer's website, as well as improving the speed and accuracy of its delivery service and assistance from its contact centres.
"It is not enough to deliver good growth and great service. To create value, both must be achieved in a cost-effective way; it is easy to grow amazing services at a cost that makes them unprofitable," reads a statement from NEXT.
Capitalising on the success of its Total Platform, the retailer also plans to improve and broaden the services offered to its clients, including improved website content management tools, promotions engine, and a comprehensive wholesale system.
The Total Platform allows brands to use NEXT's large-scale IT, warehousing and distribution infrastructure for their own e-commerce operations. It has onboarded a number of brands since its launch, including Joules and FatFace, following their acquisitions by NEXT, to drive the companies' growth via the platform. These are just two of NEXT's recent acquisitions as it continues to build its retail empire.
"We want our subsidiaries to maintain their autonomy and preserve their brand’s unique points of difference from NEXT. Occasionally, great brands will become available in which NEXT can acquire a majority stake, such as Reiss and FatFace, and we believe there will be more. We will only invest in businesses that satisfy our investment criteria," said NEXT.
Industry watchers speculate whether the retailer might be interested in saving Ted Baker, which announced its intention to appoint administrators earlier this week, and it was also recently linked with a possible purchase of troubled cosmetics chain The Body Shop.
Outgoing finance director Amanda James, who is retiring from the group in July after 28 years with the business, said NEXT will consider further deals to boost is burgeoning stable of brands following an acquisition spree in recent years, to add to the likes of Joules and Reiss.
"For the right business, we would absolutely take a look at it, but we have a strict criteria," James said.
NEXT is also strengthening its investment across beauty and home as part of a strategy to introduce larger "department store" style formats to its retail estate. Most recently, the retailer announced its plans for Eldon Square, taking over a 61,000 sq ft former Debenhams unit. The first department store format was opened in Watford Atria.
NEXT Watford Atria
The results
The strategy comes amid NEXT's financial results for the year ending January 2024, revealing a better-than-expected annual profit.
The high street giant reported a 5% rise in underlying pre-tax profits to £918 million. This was better than the £905 million it had recently guided for, thanks to better-than-forecast stock clearance in the January sales, and comes after it had already upgraded its earnings guidance five times over the past year.
It said it is cutting prices for customers by 2% thanks to lower buying costs for clothing and goods, with price tags set to fall by another 0.5% in the six months to next January.
This comes despite the group taking a hit of just under £20 million from the Red Sea disruption, as ships are having to take a lengthy detour to avoid the vital Suez Canal trade route amid attacks by Houthi rebels on cargo containers.
It revealed the shipping woes are leading to delays of between seven and 10 days on some goods from the Far East, but said "our product teams have adjusted the timing of their contract bookings to account for this delay. Higher freight costs have been factored into our prices going forward, but we still anticipate that our prices will fall".
NEXT kept its forecast for sales and profit in the current year, with the group expecting a 4.6% rise in underlying pre-tax profits to £960 million and full price sales up 2.5%.
The sales growth will mark a pullback on the 4% increase seen in the financial year just gone, with the group noting concerns over the jobs market in the year ahead as higher wages put businesses under pressure.
"We’re mindful that there could be a weakening in the employment market, while mortgages are also coming to the end and need refinancing. With that in mind, it makes sense to plan for a budget that we can achieve," said James.
But higher wages – in particular the near-10% rise in the National Living Wage due on 1 April – are also set to boost consumer spending.
"On the face of it, the consumer environment looks more benign than it has for a number of years, albeit there are some significant uncertainties," NEXT said.
The reaction
Michael Roney, Chairman of NEXT
In the context of the wider economic environment, the year to January 2024 was a very good year for NEXT and the business materially outperformed our initial expectations.
In the last year, we have focused on improving our product ranges, improving our online service levels, managing costs and profitability, whilst also laying the foundations for future growth businesses. We launched three new Total Platform clients (JoJo Maman Bébé, Joules and MADE), taking our total number of clients to seven. We also made a number of new investments, increasing our equity stake in Reiss by 21% to 72% and taking a 97% equity stake in FatFace. We also acquired 100% of the intellectual property in Cath Kidston.
The continued success of NEXT is built on the hard work, dedication, and decision-making of all the people who work for NEXT. I have little doubt and much expectation that they will rise to the new challenges and opportunities that are presented in 2024.
Charlie Huggins, Manager of the ‘Quality Shares Portfolio’ at Wealth Club:
This is another excellent set of results from NEXT, with sales and profits both progressing, in a year characterised by deep economic uncertainty and rising inflation. With inflationary pressures easing and fears of a hard economic landing receding, NEXT can look forward to the year ahead with confidence.
In truth, the UK economy has not fared as badly over the last year as many had expected. But this shouldn't take away from NEXT's excellent operational execution. Several other retailers have struggled, and some, like Wilko, have been consigned to the history books. NEXT's core proposition is clearly resonating with the UK consumer and is arguably stronger than ever.
It appears quietly confident for the year ahead. Shrewd acquisitions and investments have improved its growth prospects, while moderating inflation has significantly reduced pressure on costs. And while the UK economy isn't out of the woods, the economic tea leaves don't read as grimly as at this stage last year.
Overall, there is probably nothing new in these results today to get investors excited, and the shares may take a pause for breath. But NEXT remains in rude health, and can look forward to the future with confidence.
Julie Palmer, Partner at Begbies Traynor:
Last year was another impressive year for NEXT as it bucked the trend and delivered record results. These results highlight how the retailer is still at the top of its game and leading the charge in a sector where so many have struggled of late.
It was always clear this high-street stalwart would have strong momentum going into the new year, having raised guidance five times in the last twelve months, but the 5% increase in profits is way ahead of the competition and shows it really is a ‘sink or swim’ market.
The strategy of buying up on-the-rocks retailers like Joules and Cath Kidson is clearly working, and the fact that it is managing to improve sales figures both online and at brick-and-mortar stores is no mean feat.
NEXT will be acutely aware of the uncertainty looming over the sector and it is right to draw attention to the risks of a weakening employment market and the end of fixed-rate mortgage rates to consumers. Nonetheless, with its cost base under control and news that inflation is at its lowest level in two years, the company is right to be bullish.
And, if the Bank of England commences interest rate reductions in the summer and we see a return of consumer confidence, 2024 could be another very impressive year for one of the UK’s retail success stories.
