Next is one of retail’s great bellwethers. What does its Christmas trading update, and its predictions for next year, mean for the rest of the industry?
The fashion stalwart’s 1.5% festive sales rise was ahead of its meagre expectations – it had anticipated a 0.3% sales fall in the run-up to Christmas – as December’s cold snap buoyed sales.
Next said its improved sales performance could in part to be attributed to “much colder weather leading up Christmas” and strong growth in its ecommerce arm.
“A significant swing to online… does not bode well for some of fashion’s more vulnerable players”
There were jitters across retail in the run-up to Christmas that poor October sales, a lacklustre Black Friday and shaky consumer confidence could cumulatively spell disaster for festive trading.
Next’s results will have done some work to assuage these concerns and it is clear that despite a nail-biting December, the fashion heavyweight was alright on the night – although its results are by no means barnstorming.
But a significant swing to online, juxtaposed with a drop in bricks-and-mortar purchases and a minor sales rise overall, does not bode well for some of fashion’s more vulnerable players.
Once again, online was the big growth driver of Next’s solid Christmas trading as Directory sales surged 13.6%.
Given the lacklustre performance of Next’s retail stores, where sales were down 6.1% over the Christmas period, this is yet another reminder of consumers’ growing preference to shop online – particularly when the weather outside is frightful.
The fact that Next, with its mature ecommerce offer – Directory sales totalled £1.7bn in its last financial year – can notch up double-digit online growth illustrates how important the channel is for retailers.
Of course, Next has invested heavily in its web offer and gives shoppers a slick experience, speedy delivery and a wealth of choice. Retailers eyeing growth need to invest to make sure they are offering shoppers the same ease, choice and convenience online.
Although today’s update only gave details of Next’s full-price sales, it’s possible that the retailer’s debut Black Friday venture contributed to its Christmas success.
The fashion retailer decided to break with tradition and participate in Black Friday at the eleventh hour, partly as an experiment.
“Next is as yet undecided about whether or not it will participate in Black Friday again next year”
It used stock that was already lined up for its traditional Boxing Day Sale in the hope of driving additional footfall in-store and traffic online during November.
Next faced criticism from some shoppers on social media who complained about the lack of products on Sale during the retailer’s Black Friday event. Perhaps this led some customers to buy more full-price products with the retailer on one of the busiest shopping days of the year.
A spokesman for the retailer told Retail Week today that Next is as yet undecided about whether or not it will participate in the event again next year.
Using stock that was already put aside for the Boxing Day Sale inevitably means that fewer discount items were available after Christmas. How this impacted the fashion stalwart, if at all, will factor into its decision about taking Black Friday forward.
The year ahead
Lord Wolfson is often looked to for industry guidance, but not many in the sector would be cheered by Next’s view on the next year.
Its trading statement said: “Many of the challenges we faced last year look set to continue into the year ahead. Subdued consumer demand driven by a decline in real income, the increase in experiential spending at the expense of clothing, and inflation in our cost prices remain challenges for 2018.”
“With the Brexit deadline looming, a rise in inflation at the tail end of last year and general socio-political uncertainty, Next’s perspective chimes with the challenges many retailers will be struggling with”
With the Brexit deadline looming, a rise in inflation at the tail end of last year and general socio-political uncertainty, Next’s perspective chimes with the challenges many retailers will be struggling with.
Despite that gloomy outlook, the retailer predicted slightly improved sales in the year ahead, saying that it believed that full-price sales would grow between -2% and 4% during the year to March 2019.
The mid-point of those two figures is 1%, up from the current year’s expected 0.3% growth. Despite the optimistic outlook on sales, Next expects that profits will be eaten into further by increased costs.
Next blamed that reduction on an increased cost base, although the increase will be mitigated by cost price inflation reducing to 2% in the first half and, Next believes, disappearing in the second half.
The year ahead will undoubtedly be difficult, but cost price inflation levelling out should provide welcome relief for many fashion retailers.