Next boss Lord Wolfson was, dare I say it, somewhat optimistic as he unveiled its full-year-results this week.
The usually cautious Wolfson, a master of under-promising and over-delivering, said it was “a long time since we started a year in a more positive frame of mind”.
Yes, this is partly down to the fashion and home retailer notching up record sales and profits for the year – however, Wolfson was also enthused about the future and the “new era” that he believes the business is entering.
Next’s success so far has been down to three big things: increasing retail space, growing its Directory or online customers, and expanding its product.
However, Wolfson admits that in 2017 that magic formula stopped working – as he points out all business formulas eventually do.
Although the following years have been far from disappointing – profits have jumped a respectable, but “unexciting” in Wolfson’s own words, 16% from 2017 to date – the horizon looks somewhat brighter.
That’s because Wolfson has new formula for success.
This time the three key ingredients are: growing the Next brand overseas; developing new brands and licenses; and growing sales from its infrastructure business Total Platform and its associated equity investments, such as Reiss, FatFace and Made.
The Next boss points out that this new growth formula mirrors the strategy that was so successful between 1997 to 2017 in that “they give our product skills and our infrastructure the opportunity to play to a wider audience”.
Developing new brands
The success of Next ultimately hinges on the success of its product, and last year this was firing on all cylinders.
“In terms of performance, I can’t remember a year we’ve had as consistent performance from all our product ranges,” says Wolfson.
Despite this, he believes it can take the Next brand to “another level” by “backing newness with conviction, giving our customers genuine breadth of choice, and delivering better, more aspirational levels of quality”.
Upping quality – and therefore price – is a ripe opportunity for Next, which has seen shoppers opting to buy slightly “fewer, slightly more expensive items” over the past year.
Wolfson explains that although its average selling price is down 2%, the price per unit is up 3 or 4%.
He terms this a “meaningful shift” that his team are keen to tap into in order to “stretch the boundaries” of the brand, by using better fabrics, prints, embellishments, and trims, and even opening up new sources of supply previously deemed too expensive.
Wolfson is at odds to point out that this is “not Next going upmarket” but a “subtle shift in emphasis” and insists that its entry price points are still incredibly important.
Despite the opportunity, the retailer acknowledges that there are “natural limits” to how far it can grow the Next brand, which is why it is looking to develop new brands.
This can mean developing new brands in-house, like its Lipsy team have with womenswear labels ‘Love & Roses’ and ‘Friends Like These’.
Sales in Love & Roses, launched in 2021, soared 181% to £44m over the past year, as Friends Like These, which made its debut in 2022, jumped 90% to £33m.
However, it is also looking to grow its offer through acquiring the IP of third-party brands like Cath Kidston and Made.com, which it operates as independent licensing businesses.
Elsewhere, it is also eyeing licensing agreements with other third-party brands, like it has with Laura Ashley, Reebok, and Bath & Body Works.
These tie-ups pair Next’s specialist sourcing and technical skills with the brand’s heritage to “deliver something neither of us could deliver alone”.
Licensing accounted for £66.4m to sales over the last year, and it has recently inked new deals with Superdry and AllSaints in kidswear, and French Connection and Clarke & Clarke in home.
Going global
Another big avenue for growth is overseas expansion. Wolfson says given that the business is “quite big”, substantial growth in the UK is hard to come by. However, that’s not the case overseas.
Last year, sales at its online overseas arm jumped 17% and net margin jumped from 8.6% to 13% as it was boosted by strong growth through third-party aggregators.
However, when it comes to global performance, Next notes it performs much stronger closer to home in Europe and the Middle East, where there is stronger brand awareness and it is able to distribute goods on shorter lead times and reasonable prices.
Further afield in the Far East, the Americas and Australasia, sales have struggled. To counteract this, Next is looking to franchise and wholesale relationships in these territories.
Following a “very encouraging trial” it is working with US department store Nordstrom. It has agreed terms with another “major” US retailer and is in talks with others.
Elsewhere, it is close to finalising a franchising and licensing agreement in India and is in talks for similar agreements in other Asian countries.
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Total Platform
Next’s third growth avenue, Total Platform, will see it grow through outsourcing its impressive infrastructure to other businesses.
However, unlike Ocado, Amazon or other businesses that offer similar services, Next has sought to invest in the companies that use its infrastructure so it can benefit from the growth it will bring them.
Total Platform has been an area that Next has talked about for a while but it now having a notable impact on its bottom line.
It made £43m last year and is forecast to contribute £77m – or 8% of group profit – in its current year. Wolfson points out this figure would have been zero just three years ago.
The growth of this side of the business will inevitably see Next snap up more businesses to plug into the platform. In recent years it has bought Fat Face, Joules, and taken sizeable stakes in Reiss and JoJo Maman Bebe.
Wolfson refused to comment on whether it was in talks with Ted Baker and Matches, two fashion brands that recently fell into administration, however he did say it had “lots nad lots of ongoing conversations with lots of potential equity partners”.
Although Wolfson acknowledges there is “a lot to”, he is confident this plan can unlock growth at the retailer, which has consistently been one of the top performers in the sector.
He says it has “the potential to create a huge amount of value for our existing customers, new customers and third-party clients”.
And no doubt it’s shareholders, with its shares trading at an all-time high after yesterday’s update.
No wonder Wolfson is feeling so chipper.
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