Next needs to avoid Kodak comparison

 

Brought to you by Retail Insider and K3 Retail

Next has been a powerhouse of an online business with its Directory operation an early leader in selling clothing over the internet but things are grinding to something of a halt.

In a fairly damning research note Berenberg recently warned rather colourfully that Next is running the risk of suffering the same fate as Kodak unless it undertakes a major restructuring. Despite embracing online retail and building a serious internet operation it has always had a focus on maintaining – and in fact growing its physical store estate – and this is now proving to be problematic.

What next?

Despite adding 71% more space to its store estate over the past 10 years Next has only grown sales across its stores by a paltry 2% during this period. This clearly equates to declining sales densities across its stores. Like-for-like sales at its outlets have been negative in all but one of the past six years.

Worryingly the company is planning to add even more square footage – 1.9% of incremental space in 2018 and 3.1% in 2019. This surely cannot be sustainable?

Compounding this situation is the fact Next is re-investing far less than its competitors into the customer experience. In the last financial year it spent £130 million (equivalent to 3.2% of sales) compared with the likes of Asos with £160 million (8.3% of sales), H&M with £1.2 billion (6.6%), and Inditex with £1.4 billion (5.8%).

These are increasingly its main competitors and they are all growing their percentage of sales from the online channel – just like Next in fact. Over 40% of its revenues are generated online compared with only 24% in 2007. But despite this the group has continued to protect its store-based business.

The result of this is becoming all too apparent. And one of the key issues as highlighted by Berenberg is the lack of free home delivery from Next. Unlike its major rivals it charges (£3.99) for delivery. The free alternative is click & collect, which has served it well to date, but there is no escaping the fact clothes shoppers like to have goods delivered to their homes.

The result of this for Next is that the proportion of goods delivered to the home has declined 6% per annum over the past four years whereby it represented 45% of ordered goods in 2016 versus 87% in 2010. The solution is to offer free home delivery but this will incur a painful near term hit to earnings. And then there is the issue of all those stores. What to do with them? There are some tough decisions ahead for Next if it is to end the Kodak comparison.

Glynn Davis, editor of Retail Insider

K3 Retail deliver multi-channel solutions that enable retailers to create joined up shopping experiences for their customers whether they choose to buy on-line, direct, in-store or via mobile. It has over 20 years’ experience delivering award winning solutions, to more than 175 internationally recognised retail brands.

 

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