Is Next still a bellwether for the UK high street?
Next sailed past its projected sales figures this Autumn, the high street stalwart told markets on Wednesday, despite wider issues in the UK high street.
Overall sales rose 10.5 per cent in the 13 weeks to October 25, far above guidance of 4.5 per cent, with international sales growth at 38.8 per cent quarter on quarter.
Long known to be a bellwether of the wider economy, success at Next is usually an indicator of the health of the wider sector.
But the industry as a whole has faltered over the same time period. Retail sales hit their highest since 2022 this September in a ‘surprise boost’ for the economy – but sales only climbed 0.5 per cent.
Footfall remains below pre-pandemic levels, while Brits are expecting to cut spending on retail even over the all-important golden quarter as low confidence and high grocery inflation cuts into spending.
So, what is Next doing differently?
Next hailed as a ‘stand out’ company
Some part of Next’s success is due to careful, conservative sales predictions and its subsequent better-than-expected results.
“It is hard to think of a company which has mastered the art of being on the stock market better than Next,” AJ Bell investment director Russ Mould said.
“The company consistently pitches its guidance conservatively allowing it to then surpass expectations when it comes time to report on trading,” he added.
But he added that there’s much more to the story of Next, with the company having mastered the “basics of retail”, which gives it leeway in a tricky consumer backdrop.
“It gets the right products in front of customers, whether that’s in-store or online, at an attractive enough price point to keep the tills ringing and uses its store network extremely effectively to help facilitate online sales,” Mould said.
Other companies like Sports Direct and Tesco have used a similar strategy, focusing on getting the basic products right across all channels.
David Hughes, equity analyst, said Next was a “standout in the discretionary retail sector”, adding that the company’s success is simply a “reflection of its quality”.
Next has successfully managed the rapid switch from brick and mortar to a hybrid digital model over the last two decades, leveraging third-party sales on Label, where brands other than Next are able to sell their products on its platform.
Non-Next brands, which include Lipsy and Cath Kidston, now account for nearly half of all Next’s online sales in the UK.
Mamta Valechha, consumer discretionary analyst at Quilter Cheviot, said: “The changing profile of the business into an online powerhouse gives Next diversified growth avenues, consistent performance and strong execution by management.”
While it has been affected by the increase in taxes in the retail sector, its size and careful management, as well as an already-low price point, meant it was able to keep price increases to a minimum.
Not just about the UK
Along with a boost from third-party brands, Next posted a remarkable 40 per cent rise in its nascent international business.
While its UK business still performed better than expected – with UK sales growth at 5.4 per cent – it is not fully immune from the pressures of the retail sector.
Next expects sales in the UK to “continue to moderate”, with low confidence and unfavorable comparatives slowing sales growth down to 4.1 per cent.
“The real story today is the international segment, which is storming ahead,” Robinhood UK lead analyst Dan Lane said. “Marketing spend doubled compared to guidance but when it’s raking in revenues, it’s a sign of an efficient, returns-focused strategy.”
“It’s this malleability and quality execution that comes with being a seasoned pro in the sector,” he added.
For a company that once simply existed as a stalwart on high streets, its unique success on digital channels and in further-flung fields suggest it has progressed beyond simply being a reflection of the high street.