Next grows profits as rents high streets decline

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High Street Retail:

Next boss Lord
Wolfson says that Next was cushioned by his online ‘head start’,
while he feels “concerned� for the future of the high street when
competitors are struggling to survive. Next was fortunate to have the
head start it had with its online sales, which have boosted its sales
and high street rents are now being cut.

As reported by
Isabella Fish of Drapers online, Next’s profit before tax
grew by 2.7% to £319.6m in its half-year results to 31 July,
full-price sales were up 4.3% and total sales, including markdown,
were up 3.8% on last year. While in-store sales fell by 5.5% to
£874.3m on the same period in 2018, and online sales grew by 12.6%
to £1bn.

Lord Wolfson cited
the “head start� Next had with its online business as a major
factor in its success compared to other retailers, moving from a
catalogue model to online:

“We were
incredibly fortunate that we started this millennium with a mail
order business because a mail order business has, in essence, all the
assets of online – other than a website – that you need for
online trading.

“We had the
delivery network, we had the systems, we had the warehouses and the
customer-base. Because we had that base from 1995 onwards, that has
been enormously helpful to us over the last 20 years,� said
Wolfson.

According to
Drapers, Next’s website was launched in 1999 and cost £7,000
to build and launch. Its Label business, selling third-party brands,
increased 26% on full-price sales with total sales, including
markdown, up 29% in the first 6 months of 2019, compared with 2018.

At the end of the
first half of 2019 Next had 499 stores, and Wolfson admitted to
Drapers that he is worried by the number of high street store
closures:

“Of course it’s
a concern, but it’s a concern we’ve tackled head-on. It’s not
going to be painless and we’re not through the woods yet, but with
the extent and speed that rents are being cut and the relatively
short-term that leases are being offered, we can see a way of
managing that decline in such a way that the group continues to
prosper.�

For the year ending
January 2020, Next says it expects to renegotiate 37 leases,
achieving rent reductions of 28% and renewing for an average lease
term of 4.2 years.

“The conversations
we’re having with landlords are matter-of-fact, not
confrontational. At the end of the day, there’s a price at which we
can afford to keep shops open and a price at which we can’t, and we
give that option to the landlords,� says Wolfson.

“I feel badly for
landlords in a way because the rents being so high is not the fault
of retail landlords, we have built rents up to where they are and
we’re now paying the price of that. As and when leases are coming
up for renewal, we’re offering the landlord what we can pay to keep
the shop open for the duration of the term they’re offering us.

“Firstly, average
rents are coming down by about 28%. Secondly, on average we’re
taking a four-year term of lease. So, we’re reducing both the risk
and the costs.�

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