Next has joined other high street stalwarts in coming up with “inventive” ways to keep shoppers walking through its stores. Coffee shops? Yes. Prosecco bars and nail salons? Soon. The latest fashions? Open to debate.
However, the key question is: has it invested enough online? And is all this just covering the fact that its sprawling store estate has become a millstone?
Next has 543 stores and recently announced a 75,000 sq ft out-of-town shop in Merry Hill, near Birmingham, in what will be one of its largest sites. All this expansion comes while its rivals — including Marks & Spencer and Debenhams — are shuttering shops.
Questions over strategy are reflected in a volatile share price. The stock is down almost 16% since the beginning of the year — sparked by a disastrous set of results in January when more than £948m was wiped off its value in one day. Womenswear appears to be the weak link.
A spot of relief came earlier this month when warm weather helped it beat City expectations with a 0.7% rise in sales in the three months to July 29. Markets had predicted a 2.8% decline.
At first glance, the figures looked positive. However, it is the contrast between Next’s online sales (up 11.4%) and in-store (down 7.4%) that has driven analysts at Berenberg to raise the alert. Over the past 10 years, store revenues have risen by 2%, while space has increased by 71%. It has far more stores than M&S (about 340) and Debenhams, which has 165.
Meanwhile chief executive Lord (Simon) Wolfson, a leading Brexiteer, warned that prices could rise by as much as 5% this year because of sterling depreciation.
Next has a free cash flow yield of about 8% and has committed to quarterly dividends of 45p a share. Any overhaul would hit these payouts.
Elsewhere, its Directory business — which thrived in the wake of the financial crisis when traditional consumer credit was hard to come by — is suffering as people turn to credit cards.
When Next launched a website in 1999, it was ahead of its rivals, recognising the shift to ecommerce. However, since then it has failed to stay ahead of the pack. It is seeking to catch up with Next Unlimited — offering standard next-day home delivery for £20 a year — but critics say this isn’t enough.
Next must streamline its rambling store estate, invest more in online, and sharpen up its fashions. Until then, it’s likely to be a rocky ride. Avoid.
