As bellwether Next unveils a 11.8%, its well respected boss Lord Wolfson gives his thoughts on the big issues in retail.

As bellwether Next unveils a 8.2% jump in pre-tax profits to £271.8m, its well respected boss Lord Wolfson gives his thoughts on the big issues in retail.

Wolfson on…the economy:

“Employment remains strong which is the most important thing in the consumer economy. This time last year we said that we felt that the credit crunch was over for the consumer. Throughout the credit crunch money was consistently flowing out of the economy which says that people were using their income to pay down their credit cards but what we saw last year which a return to growth in credit.

There is some potentially encouraging news in the earnings market. What we’ve seen in the last few months is the coming together of inflation and real income. If we go back into an era of real income growth then that will be good news for the consumer economy.

We are marginally more positive than we were at this point last year but recognize there are risks on the horizon. The first is that real income might not grow and if they don’t, we can’t expect the growth in the credit market to continue to bail us out and secondly, at some point as the recovery gains strength, interest rates will have to go up and that will have the effect of dampening any recovery. It won’t wipe it out, but whatever recovery we get won’t be dramatic in terms of consumer spending.

We’re budgeting more positively for next year but not exuberantly.”

Wolfson on…the Budget:

“There doesn’t seem to be anything that will make a huge difference to the retail economy and that’s the way it should be. I was very encouraged to see the announcement about Ebbsfleet [garden city]. To see real earnings growing we need to see a growth in the supply side of the economy – investment, building. So the announcement of the development in Ebbsfleet which is the first of its kind for many, many years is a great thing for the supply side of the economy and if it it’s indicative of future policy then it’s really good news for UK PLC.

We’re in a situation where the Government has very little room for manouevre and if every industry wants a little morsel. The reality is that whatever the Government gives with one hand, it has to take away with another.”

Wolfson on…proposals to base business rates on store turnover:

“It’s kind of punishing success, which is potentially dangerous. From one retailer to another that would be unfair, but for one location to another it would make sense. So if they said, we’re going to set the rates for Swindon high street as against Glasgow city centre but if you go shop by shop to determine rates by turnover, you’re punishing success.”

Wolfson on…improving service

“We want to move our service from a position from where it’s good, but not consistently outstanding to a situation where it is very good. That’s not just in our stores, it’s also in our call centres. We’ve reviewed the recruitment process, bonus systems, man hour planning systems, appraisal systems we’ve changed over the past year with a view to improving service.”

Wolfson on…overtaking Marks & Spencer’s profit

“What matters is not our relative performance but our absolute performance. Next doesn’t look at market share. We look at sales growth and profit growth, margins, breadth of range. Being the biggest or the bravest is not one of our objectives. Our goal is to serve our customers as well as we can, not to get into some relative competition.”

Wolfson on…speedy delivery

“We had a same day delivery service but no one used it. The premium you had to pay for it, which is only £3, meant that very few people took it up.”

Wolfson on…Scottish independence

“I don’t think it will make any difference. Our objective will still be to sell the best product in the nicest stores that we can. We don’t manage our business any different in Eire than we do in the UK.  I don’t see Scottish independence as being a business issue.”

Wolfson on…moving to a four season buying system

“If you look back over the past ten years, what we call autumn has been warmer than what we call summer and what we call spring has been colder than what we call winter. What’s changed is consumer purchasing patterns.

Over the past 20 years people have moved from big clothing shops and travelling to Oxford Street to do a big shop to buying their smaller amounts of clothing, more frequently and closer to the time that they need it. And that means that the old way of structuring ranges isn’t appropriate.

Our customers will see a bigger change from spring into summer and from autumn into winter. In many ways, especially in relation to the faster fashion end of the market, this is about catch-up and not overtaking what the rest of the high street is doing.”

Wolfson on…branded fashion launch Label

“Label is a trial and it’s an extension of a business we were already running. Next has been selling non-Next branded product for 10 years and it’s got to a stage now when it’s got to a critical mass that can be put into a brochure. It’s also an opportunity for brands that wouldn’t want to be in a Next Directory, who wouldn’t like the adjacencies. It gives them an opportunity to be part of the Next infrastructure with a business that isn’t branded Next. But it’s a trial and whether or not it’s successful, we’ll have a lot more information on in six months time.

We’ve got much bigger stable of brands [than it did when it launched ill-fated stand-alone branded site Brand Directory in 2008]. When we started it, it was at the very beginning of our branded business. We’ve now got many more brands so maybe the timing will be right. There are very few other outlets which allow their brands to offer free next day delivery if their customers order up to 10pm.”

Wolfson on…the housing market

“It’s a question of the housing market returning to a more normal environment from an unusually depressed housing market rather than a boom, the likes of which we haven’t seen before. Transactions are 20% up on last year but on any historical basis it’s below the average housing turnover for the last twenty years.

We’re seeing strong growth in home both from new space and from like-for-like over the space that we’ve both over the past six years.”

Wolfson on…the property market

“A very small number are becoming more expensive. The vast majority of rent reviews are no increase and the vast majority of lease renewals are at lower rents. That represents a much bigger shift in the UK, not least in the growth of online.”

Wolfson on…China

I don’t know where the biggest opportunity lies but I’m pretty sure that China is not it. It’s a new territory for us already. I think people see numbers and think that’s indicative of sales. So much of whether you can trade online depends on the average income of the country and secondly the online penetration, access to the internet and the speed of the bandwidth. China could be a big market in 10, 20 years time but I don’t think it’s going to be a big market in the short term.

Wolfson on…Next’s growth opportunities

“There are two big opportunities for growth. Retail space is still an opportunity for growth and much of that space will be devoted to home. 40% of the space we opened last year was devoted to home, as against the portfolio average of 25%. The second is online and that breaks down to the UK, where I think we’ll see increased penetration of the internet and overseas growth online as well. It will take a while for it [overseas online] to become a material part of the business. Our aim is to grow it as fast as we can profitably.”