As Next continues to surpass even its own expectations despite the impacts of the pandemic, what does its trajectory mean for the rest of fashion retail?

Next recorded full-price sales down just 1.5% in the 13 weeks to May 1 versus the pre-Covid year of 2019. It had estimated sales would be down 10%, thereby beating its forecast by £75m

The retailer consequently raised its profit guidance for the second time in two months to £720m as its sales continued to exceed expectations and outperform its competitors.

For much of the quarter, Next’s bricks-and-mortar stores were closed because of lockdown restrictions, but the retailer said online sales made up for lost store sales.

However, chief executive Lord Wolfson said the transfer from store shopping to online did not occur in its core adult clothing category. Instead, it was evident in adjacent categories such as homewares, children’s clothing and its third-party Label business.

Next menswear Manchester store

While physical stores were closed, sales fell in Next’s adult clothing category

While Next’s overall sales were down just 0.6% despite the 10-week closure of its stores, its adult clothing division suffered a 46% decline compared with 2019 levels. 

Next’s branded homewares division recorded a jump in full-price sales of 12%, while its third-party business increased sales 67% over the same 13-week period, meaning it was able to counterbalance the fall in demand for adult clothing.

Next also recorded strong performance overseas. Its international sales jumped 67% compared to two years ago, as customers abroad also took advantage of its online offerings.

Since reopening, Next’s sales have indicated a pent-up demand from customers who returned to in-store shopping over the past three weeks.

Sales were up 26% compared with 2019 in the final week of the quarter, growing from the 10% increase in the first week after stores reopened.

“No one has been going to weddings, events, Christmas parties or going on holiday; all this clothing just hasn’t been bought”

John Stevenson, Peel Hunt

Over the three-week period, total full-price sales were up 19%, as well as being up 2% in stores and 52% online.

Wolfson cautioned that he believed the post-lockdown surge would be short-lived and current sales were ”very unlikely to be indicative of demand for the rest of the year”.

He posited that such pent-up demand would settle down to normal levels over the next few weeks, so Next has retained its sales guidance for the full year at 3% above 2019 levels.

Within this, Wolfson predicts in-store sales will be down 20%, while online sales will increase 24% for the full year – indicating that online will continue to thrive in a post-lockdown world.

next

While its diverse categories and international prowess were cushions for the retailer, Peel Hunt analyst John Stevenson also thinks the switch in spend to lockdown winners such as homewares and loungewear will be short-lived, and that as restrictions ease, all of fashion will be able to take advantage of pent-up spend.

“If we step back from Next and look at the wider sector, clothing fell by 25% last year and within that, there was a big switch to lockdown categories like loungewear and athleisure,” he said.

“Next also said that its normal products – formalwear, occasionwear, holiday gear – fell by 41% last year, and it has said now that own-brand adult clothing is down by 46%.

“You can see this around the sector. No one has been going to weddings, events, Christmas parties or going on holiday; all this clothing just hasn’t been bought. 

“My argument is what happens when lockdown restrictions ease? There’s going to be a reboot into normality.”

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Stevenson believes once the weather improves and restrictions ease, consumers coming out of lockdown will have more reasons to spend the savings they made in lockdown and will be keen to do so in fashion.

A return to normality, therefore, remains the big question. While Next felt less of a blow to overall sales in lockdown because it had offerings in other categories, the post-social distancing world may paint a different picture for fashion.

As one of the strongest performers in the market, Next’s prediction that sales will recover to 3% above 2019 levels shows the upside of what the fashion industry could feel in the coming months.

“Next has got a broad offer and has therefore done particularly well but there’s not room for everyone to be a platform,” Stevenson said.

Retailers wishing to replicate Next’s success will need to focus on key areas of strength: online, international or broader categories to broaden appeal.

While fashion retailers with their eye on the ball, which maintain relevance and engage with their core customer, may see things start to pick up, a return to normality could be fatal for those who are too reliant on a limited product offer.