Next e-sales make up for closed stores as loungewear trend rules festive season
Next’s trading update on Tuesday showed that the company continues to be one of the most efficient and well-run fashion retailers in the UK as its full-price sales in the nine weeks up to December 26 fell by only 1.1%. That was despite lockdowns or other restrictions that affected physical shopping across much of the UK.
The company had expected a fall of around 8% when it issued an October trading statement, so the much smaller drop was good news all round.
And it said it expects full-year profit before tax to be around £370 million (before a couple of one-off items). The company’s debt level should also fall by more than £135 million for the year.
But despite the better-than-expected festive season, the year hasn’t started well as new lockdowns have been mandated and this will hurt its full-year figures.
On Tuesday, Next said: “Profit gained from the over-performance in November and December has been almost entirely offset by the anticipated loss of full-price retail sales in January due to the lockdown closure of 90% of our stores (by value).”
The company is assuming that 50% of the lost retail store sales in January will be recouped online, but total full-price sales in January should still be down 14%. And with the current UK lockdown likely to continue into February, it looks like the start of the new financial year will be weaker-than-hoped too.
It also said that in addition to the closure of stores, the pandemic has adversely affected the flow of container traffic from Asia. Currently, many of its deliveries are running two to three weeks late and it expects this level of disruption to continue. It means its stock levels are currently down 10% versus two years ago. But it said stock levels should steadily improve and return to more normal levels by the end of March.
Overall, the company is reasonably upbeat. So what actually happened over the festive period to make it so? Well, in the nine weeks up to Boxing Day, the company completed plenty of extra online sales and these almost made up for the sales that it lost through shuttered physical stores. In fact, with financial services taken out of the mix, full-price product sales fell by only 0.5%, which is an impressive result by anybody's standards in the current circumstances.
The strength of the company’s online business – which accounts for around half of its overall sales in more normal times – has been key to its performance throughout the pandemic. Next said that in the fourth quarter up to December 26, its online sales rose 36% in the UK and 43% abroad for a combined total of 38%.
That was better than it achieved in the rest of the year with the company saying that during the second half as a whole, e-sales rose 30%. In the full year meanwhile, UK online sales rose 9%, while overseas rose 13% for a total of 10%.
Compare this to the company’s physical stores where sales fell by 43% in the latest quarter, by 30% in the second half and by 46% in the year to date.
So what did it sell in the latest quarter? Despite Q4 usually being all about the party season, the company saw similar sales trends to those earlier in the year with kidswear, home, loungewear and sportswear all doing well. Adult clothing for work, parties, events and going out did badly.
A key factor in its Q4 performance was that the returns rate continued to be much lower than last year, running at 21% compared to 36% 12 months earlier. That's partly because the categories that did well tend to have lower returns rates than those that did badly. But the company also said returns were reduced by the fact that customers were more selective when placing their initial orders.
It added that when its stores were able to open, those located in out-of-town retail parks continued to perform around 15% better than those in city centres and shopping centres.
Despite all the good news, there’s no denying that Next faced similar issues to those of its competitors as far as dealing with surplus stock was concerned. This has led to extra-large clearance sales at many companies.
But in another sign of how well run Next is, it appears to have largely got to grips with surplus surplus stock problems, although its profits will still be affected by the issue. It actually said stock going into clearance was down 12% on last year.
But the closure of around 50% (by sales value) of its retail stores limited its capacity to clear sale stock in its traditional Boxing Day event. To mitigate these closures, it significantly increased the amount of clearance stock available to order in its online sale. It now estimates it will clear around 25% of its retail sale stock through e-sales. However, the cost of clearing stock will be £5 million higher than anticipated.
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