Next has much to be positive about, says GlobalData

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Following today’s release of Next figures for FY2020/21; Amy Higginbotham, Retail Analyst at GlobalData, a leading data and analytics company, offers her view: “Next has taken a logical and pragmatic approach to COVID-19, and has been much more transparent about the impact the pandemic has had on the business than most other retailers. It performed well during FY2020/21 considering that stores were closed for 20 weeks of the year, largely thanks to its strength online. Having raised its profit guidance various times throughout the year, Next achieved a profit before tax of £342m on a 53-week basis (in line with guidance given in January).

“Next successfully transferred shoppers to its website while stores were closed during periods of lockdown (though there were some initial teething problems in March and April last year). This was particularly true in H2, when online sales grew £364m, almost entirely offsetting the £368m decline in retail sales. Next accelerated investment in online, spending £121m on warehousing and systems during the year, which will have helped it increase capacity and cope with elevated demand. Its Next Unlimited delivery saver scheme will also have driven brand loyalty as spend shifted online.

“Next continues to boost relevance by partnering with new brands including Childsplay Clothing, Victoria’s Secret and Reiss through its Total Platform service. This has helped Next broaden its appeal, with the number of active customers in January 2021 up considerably across all age groups compared to last year; growth was particularly high among the under 30s (+40%) and over 60s (+49%).

“Next’s broad product range has also served it well; home, childrenswear, sportswear and loungewear categories (which accounted for 58% of sales gong into the first lockdown) outperformed, protecting total sales from more severe decline amid falling demand for formal and occasionwear. These stronger-performing categories also have lower return rates online, which helped Next boost profitability in this channel; online profit margin rose 1.3ppts to 19.9%.

“Next is optimistic about FY2021/22, expecting full price sales will return to FY2019/20 levels (a two-year comparison) despite stores remaining closed for the first few weeks of the year. It also raised its profit guidance for FY2021/22 from £670m to £700m. Its share price rose 4.2% in early trading this morning as a result.”

Chris Daly, CEO at the Chartered Institute of Marketing, said: “With 12 days left to go until shops reopen in England, it won’t be a day too soon for Next, which has suffered a significant fall in profits after a year of extremely difficult trading conditions.

“But if there’s one brand that knows how to weather a storm effectively, it’s this one. Evolution has been key to its 157 year old success – from pioneers of the modern day chain store, to today’s ambitions to become the ‘Ocado of fashion’ after extending its online third party Total Platform.

“Next saw strong online sales from locked-down Brits seeking home and loungewear during the pandemic but the brand did not rest on its laurels and instead used store closures and lockdown to refocus on ambitious plans for long-term growth.

“Its strategic partnerships with fashion brands such as Reiss have strengthened its online sales platform. While setting an ambitious goal to source 100% of its main raw materials through known, responsible or certified routes, as well as signing up to the U.S. Cotton Trust Protocol has undoubtedly pleased its conscious consumers.

“With shops reopening in a matter of weeks, Next will be hoping that better days lie ahead. But what’s abundantly clear, is that its forward-looking approach to the retail market, will make it attractive to businesses and consumers alike.”