As retail’s golden quarter nears, bosses of fashion and homewares giant Next are more concerned about a warehouse labour shortage than a lack of HGV drivers – and order cut-off times may be brought forward to manage demand.

Next Watford front

Following a rise in online sales during the pandemic, smooth warehouse operations will be vital to success over peak. As Next delivered interim results that smashed expectations – pre-tax profit of £347m in the six months to July was up 5.9% on 2019 levels – chief executive Lord Wolfson said: “We feel in a more positive place than we have done in the last five years.”

But he flagged pressures moving into view in the coming months – the filling in a “good news-bad news-good news sandwich”, in which better-than-expected performance and a longer-term unwinding of some of the issues facing the business formed the bread.

Wolfson maintained that the driver shortage was to have a greater impact on other business sectors. At the moment, he said, “our operation has not been impacted by the absence of drivers” – Next uses some agency drivers but mainly employs its own. Wolfson said: “I don’t think we’ll see the shelves short of stock in the run-up to Christmas – certainly in our business.”

The brunt of extra supply chain costs Next has borne relate primarily to freight shipping but, as he looks forward to the Christmas period, Wolfson believes the pressure point would be in warehouses, where seasonal staff are typically needed. In the past many might have come from overseas – one factor contributing to an anticipated shortage this year.

Next reported that “demand will be comfortably within our capacity constraints, though there are likely to be some pressure points in December”.

Next weekly volumes

The challenge is likely to come if demand outstrips Next’s own forecasts, in which case service levels will be affected. 

That is because the solution likely to be deployed would be to shift to an earlier order cut-off time for next-day delivery, moving more volume into the early hours of the next day when capacity is greater. The approach was previously taken at the height of the Covid pandemic.

Next packing volumes

Wolfson said that currently capacity is for over 4m items per week to be packed for an 11pm cut-off for next day delivery. He added that an earlier cut-off time would be “the first lever that we can pull in terms of increasing capacity” and insisted: “We don’t tend to see a big reduction in sales when we pull it.” 

He said: “We don’t think we’ll get to the stage where we can’t take orders. We’re not worried about being able to service demand, but we may not be able to service demand as quickly as we [otherwise] would. 

“It might mean that rather than saying we can take an order up to 11 o’clock at night for next-day delivery, we may have to pull that cut-off to 6 o’clock in the evening or even say it’s going to be 48 hours rather than 24. 

“By moving picking into the following day you can achieve much higher efficiency. You’re not trying to cram huge amounts of work into the last three hours of the day […] You can increase productivity, but it comes at the expense of service.”

We need help on migrant labour supply

In the longer-term, Wolfson would like to see more agile handling of migrant labour needs. He maintained: “The big issue is availability, and particularly availability for seasonal staff. The answer we think, particularly for seasonal work, lies in an immigration policy that makes the best use of the contribution that people from overseas can make to our economy where they’re most needed. At the moment the system doesn’t do that.”

He differentiated between the principle of the UK deciding its own immigration policy and the detail of what such a policy might be. During peak Next would normally increase labour by 10% to 15% - around 500 workers in its warehouses. He said: “We will fill some of that domestically, but I think it would be difficult to get up to the levels we would like.”

Wolfson would like to see a faster, smarter regime – in contrast to the last-minute issuance of visas, as has just happened during the petrol driver shortage. He said: “It’s not what more could have been done, it’s what could have been done earlier. 

“The key is to recognise skills shortages rapidly, and respond to them vigorously. The fact that those visas were only granted as and when petrol queues started forming, when the [driver] crisis had been foreseen and forewarned for so long, is indicative of a system that doesn’t respond fast enough.”

Wolfson said that the petrol crisis and other uncertainties have not so far affected the behaviour of Next’s shoppers and he was unsure whether consumers would order early for Christmas to ensure their goods arrived on time, or whether there would be a last-minute rush.

He said: “If trade is smoother in the run-up to Christmas it will obviously make it much easier but as a business we have to prepare for it to be as peaky as it has always been.”

If the golden quarter does turn out to be as “peaky” as previous years, Wolfson and Next will need to play another operational blinder. 

GOLDEN_QUARTER_2021_CRITEO_DHL_TRUELAYER