It is sometimes criticised for its safe and reliable take on the season’s hot clothing trends yet Next has emerged as a big winner from the high street’s year-long Covid nightmare.
The group’s shares hit an all-time-high on Thursday after it revealed online sales for the past two months had surged 60% higher than in 2019. It is now the UK’s biggest internet clothing retailer – ahead of rivals like Asos and Boohoo. Business boomed as Britons logged on for stay-at-home basics ranging from joggers and slippers to kids clothes, patio sets and cushions during the third lockdown.
The surge meant that, despite the fact its near 500 shops have not been open for a single day in 2021, annual profits are now on course to recover to pre-Covid levels of around £700m.
Simon Wolfson, the Next chief executive, said the FTSE 100 company had been “fortunate” to be so well-placed to “ride out the swings in consumer behaviour caused by the pandemic”.
Before the health crisis more than half of Next’s sales were already online so unlike rivals such as Primark, which does not even have website, it was able to rake in sales even when its shops were closed.
In fact the company’s decision to sell hundreds of other, often edgier, brands on its website, including big names like Adidas, Nike and North Face, in competition with its own ranges, has quietly turned it into the UK’s biggest online clothing and footwear retailer with more than more than 200,000 products for sale on its site.
This time last year, Wolfson warned that retailers were “facing a crisis that is unprecedented in living memory” as Covid-19 arrived in Britain. In the end its pre-tax profits more than halved to £342m in the year to the end of January while more than £700m was wiped off the group’s sales, down by nearly a fifth to £3.6bn.
“If we had been told 12 months ago that our shops were going to be shut for 20 weeks, we could not have imagined the group delivering the sales or profit we achieved last year,” said Wolfson of the achievement.
The pandemic has caused huge disruption to high street retailers, with 20 weeks of mandatory store closures and social distancing requirements since the end of March.
Wolfson said the outlook for the shops was very uncertain: “There remains a big question mark over the level of sales our stores will achieve when they reopen. The pandemic has served to accelerate a pre-existing social trend – the move to more online shopping. History has been given a shove and, having moved forward, seems unlikely to reverse.”
These big changes in shopping behaviour have encouraged Next to follow catalogue chain Argos and axe its Next Directory. Cancelling the catalogue, which it has been publishing since 1988, would save the company £30m it said.
Next’s resilience contrasts with many of its retail rivals. Department store John Lewis last month said it would shut more stores after losing £517m during 2020, while Marks & Spencer suffered its first loss in 94 years as a public company. Debenhams and Arcadia both collapsed.
The Next figures also provided a window on how we lived and spent our money in 2020. While demand for holiday fashions, suits, party frocks and shoes crashed 41%, sales of stay-at-home basics such as joggers, children’s clothes and home furnishings were up 3%.
“Next sells the kind of clothing basics that people have wanted to buy,” explained Maureen Hinton, a retail analyst at research firm GlobalData. “If you are sat at home and you want a pair of leggings or a top then it is a good place to go because you know it is going to be delivered and what kind of quality it will be.”
The collapse of Debenhams would also have benefited Next which has a good range of home furnishings, continued Hinton. “There was always that triumvirate of Debenhams, Next and M&S, and if one was doing well the others are doing badly. I imagine it has picked up an awful lot of Debenhams shoppers.”
This year’s strong online sales, which encouraged the company to nudge its profit guidance to the City up by £30m to £700m, was welcomed by investors. The shares touched a high of £82.32 during the session before closing up 3% £81.14. Last Spring they crashed to some £33. That new record high values the company at £10.8bn. Marks & Spencer, by contrast, is valued at less than £3bn.
Next is a very well managed company, says independent retail analyst Richard Hyman. “On the retail side they are very unspectacular but very consistent and reliable,” he said, adding: “It understands itself and its market.”
Indeed rather than worrying the death of the high street and the future of its stores, Hyman thinks the biggest risk to Next’s future success is the departure of Wolfson who, at 53, is the FSTE 100’s longest serving chief executive. The Conservative peer has been running Next since 2001.
“Simon Wolfson is in a different league when it comes to leadership and vision,” said Hyman. “The big risk around Next is him. It is a bit like Spurs best player is Harry Kane, that is a huge advantage and also a huge vulnerability.”