Upcoming Online Sales Boosted Growth Before Christmas, But Inflation Expected to Push Prices Up 6% by Fall – Strategy & Innovation

Sales were stronger than expected ahead of Christmas, but rising costs could affect future demand. Image courtesy of Next

Pent-up demand has led to increased sales despite stock and staff shortages which have reduced delivery standards

Next’s sales rose rapidly online ahead of Christmas, despite sub-par delivery standards and staff and inventory shortages, while in-store sales fell. Customer demand was strong enough that overall fourth-quarter sales beat expectations, helping the fashion home retailer boost its profit and sales forecast for its current fiscal year.

Next, which is ranked a leader in RXUK Top500 research, today reports a 20% increase in full-price sales in the fourth quarter, including internet revenue, in a business update for the eight weeks to 25 December – and a 13% increase in the year for the same date. Both are in comparison with the same period two years ago – in its pre-pandemic 2019/20 financial year.

It now expects full-year full-price sales growth of 12.8% – or £70m – from two years ago, and pre-tax profits of 9.8 % future. And in the 2022/23 financial year, it expects to deliver 7% year-on-year sales growth and 4.6% pre-tax profit growth, while rising inflation means Next expects the cost of its clothing and household items to rise by as much as 6% in the fall.

How online sales boosted pre-Christmas sales growth

Online sales were up 45% in the first eight weeks of its fourth quarter, through Dec. 25, and 49% year-on-year, again, compared to 2019. The fastest growing trade electronics was registered on its Label UK website (+85% in the fourth quarter, +76% in full year), which markets third-party brands. This is followed by online sales abroad (+36% in the fourth quarter/+51% for the year) and online sales of the Next brand in the United Kingdom (+31%/+36%).

But while online sales rose, in-store sales fell, falling 5.4% in the fourth quarter, and 24% for the year as a whole, compared to the 2019/20 financial year.

Next says it expected fourth quarter sales to be weaker than third quarter, but saw a “strong recovery” in adult formal and formal wear sales which “significantly improved sales throughout the last period”.

It says in a trade statement today: “Ahead of Christmas, our stock levels were significantly lower than expected. We also experienced some degradation in delivery service levels due to labor shortages in the warehousing and distribution networks. The fact that our sales have remained so robust under these circumstances is, in our view, a testament to the strength of underlying consumer demand during the period. »

Selling inventory was 18% lower than two years ago, primarily because full-price sales were higher than expected in the quarter. Clearance rates to date have been in line with expectations.

Year over year, total full price sales, including interest income, increased 23% from the fourth quarter and 35% from the full year.

Look forward

Next says it is particularly difficult to forecast its sales for its next financial year, in light of factors such as inflation and uncertainty over whether buyers will continue to spend as costs and demand rise elsewhere. – from the rise in the prices of public services and national insurance to the renewed appetite for travel.

It expects to increase its UK comparable retail prices by 3.7% this spring and summer and 6% in autumn and winter. This reflects rising costs, including rising freight rates, wage inflation (+5.4%) due to the rise in the national living wage (+6.6%) and wage increases in areas affected by labor shortages, especially warehousing and technology.

Nonetheless, he currently expects sales to be ahead by 7% to £4.6bn and pre-tax profits to be around £860m (+4.6%).

Our point of view: It’s worth noting from these numbers that Next’s online sales growth is particularly strong when the retailer sells brands other than its own. Sales through its Label website – which features third-party branded products – rose 85% in the fourth quarter alone.

In recent years, Next has focused on using its technology and established delivery processes to sell other brands, not only on the Label website, but also by managing websites, orders – and sometimes stores – for brands ranging from Victoria’s Secret to Gap. Doing so is part of the retail-as-a-service trend that is also being rolled out by Yoox Net-A-Porter and Ocado. We will seek to hear more about this from Next when it releases its annual results on March 24.

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David A. Albanese