As Next upgrades its profit outlook for the year following a strong second quarter, Retail Week explores the retailer’s data, which may paint the fullest picture yet of what the post-pandemic ‘new normal’ actually looks like. 

In a trading update for the first half to July 30, Next boss Lord Wolfson said the fashion retailer was seeing a “sharp reversal” in customer behaviours built up over the pandemic, most notably the recovery of store sales and slowing of online growth.

Product trends, too, are beginning to revert to pre-pandemic norms, with the likes of homewares and sporting goods dropping in popularity, while formalwear makes a comeback as people socialise again over the summer.

Next’s full-price sales for the second quarter were up 5% – £50m “stronger than expected” and likely driven by unseasonably warm weather in June and July.

The online/offline balance

Next Online sales

While Next flagged a drop in online sales in favour of customers returning to stores for the period, Wolfson said the overall data belies that shift.

Wolfson wrote: “At first sight, our full-price sales performance against last year suggests that growth online has ground to a halt and that retail is having something of a renaissance. 

“This is certainly the case on a one-year basis. But we think that these changes reflect a short-term reversal of pandemic trends and are unlikely to be indicative of longer-term trends in consumer behaviour.”

Next instead has drawn on one-year and three-year post-pandemic comparisons for both ecommerce and in-store revenues to paint a fuller picture of Covid-19’s effect on sales channels.

During the second quarter to July 30, Next’s store sales were 4.7% higher than anticipated, compared with three years ago.

The retailer said it had planned for stores to be down compared with 2019, following a trend of negative like-for-like sales since 2016.

Next retail sales chart

However, with the closure of competitor stores such as Marks & Spencer and Debenhams, Next’s high street locations have been able to shine through.

The retailer said it “suspects that the apparent improvement in the fortunes of our stores is, to some extent, down to the number of competing stores that have closed in the last three years”.

It added: “This is supported by Office for National Statistics industry statistics for February to June, which suggest that the total money spent on clothing in all UK retail stores is down -6% compared with three years ago.”

Online sales, meanwhile, jumped 44.4% on a three-year basis. 

A cautious future

As online shopping behaviours normalise, so too have returns rates, which now stand at 42% for the first half of the financial year.

As the product mix shifts away from casualwear and homewares towards more fitted apparel items, returns rates are inherently higher – which Next said was the reason for this rise.

Unlike retailers such as Boohoo and Asos, which have flagged elevated returns rates, Next’s are only 1% higher than pre-pandemic levels, which may be in part due to the returns charge it has had in place since 2018.

Other retailers, including Zara and Boohoo, have followed Next’s lead in charging for returns in order to solve the issue and discourage serial returners.

Next returns

Likewise, surplus stock levels normalised in line with pre-pandemic levels.

Next highlighted that discounted stock was exceptionally low last year as a result of stock shortages across the retail sector, meaning Sale stock was up 30% year on year in the first half.

However, discounted stock grew 25% compared with three years ago, which is broadly in line with the 23% growth in full-price sales in the first half compared with the same period.

The retailer added that clearance rates have, however, performed below expectations.

While the warmer weather drove an uptick in full-price sales, it hampered purchases of “heavier-weight” goods such as coats and jumpers, particularly during Next’s key summer Sale.

Despite raising its profit guidance by £10m and outperforming in many areas, the retailer’s outlook remains cautious.

Next is unsure of continuing its strong momentum into the second half of the year, predicting just a 1% increase in full-price sales.

It gave two reasons for this. First, the “unusually warm summer boosted sales in the first half and we do not expect a similar weather windfall in the second half”; second, “the impact of inflation on consumer spending is likely to worsen in the second half”.

It is clear both online and bricks-and-mortar retail sales growth is stabilising, but the impacts of external factors such as weather and inflation cannot be downplayed. 

Next, the fashion sector and the retail industry at large can be positive yet cautious as they enter a post-pandemic world.

  • Get the latest fashion news and analysis straight to your inbox – sign up for our weekly newsletter