NEXT reinforced the changing face of its business by reporting a surge in online sales for the year ending January 2019, as sales continued to fall sharply in its stores.
The company underscored the UK’s shifting retail dynamics by unveiling a 14.7 per cent increase in online full price sales to £1.9 billion, offset by a 7.9 per cent drop in full price store sales to £1.96bn.
Pre-tax profits at the high street bellwether dipped by 0.4% to £722.9 million – in line with guidance issued by the company in January – as total group sales grew to £4.2bn from £4.1bn.
And it warned profit would fall “marginally” in the year ahead, as the cost of doing increasing business online is added to fixed costs such as rent.
The results bring into sharp relief the impact on the high street from the rapid growth of online shopping.
Along with rental costs and surging business rates, it has been cited as a key factor as a succession of major retailers have run into big problems in recent years.
However, the company said that, despite the lack of clarity surrounding the UK’s
relationship with the European Union – and no sign of progress despite the legal Brexit date of March 29 looming – it sees no evidence of the uncertainty affecting consumer behaviour in its sector.
Next itself has seen the percentage of sales generated by its online Directory
business rise from 23% in 2003 to 53% in 2018. The proportion of sales taking place in Next stores has dipped to 47% from 77% over the same period.
But despite the drift to online sales, the retailer insisted yesterday its stores “remain a valuable financial asset and an increasingly important part of our online platform”. In 2018 it actually increased its net retail space by 23,000 square feet, taking its total portfolio to 8.3 million sq ft, though store numbers dipped to 507 from 528.
It said it expects to increase trading space by around 50,000 sq ft this year. Sophie Lund-Yates, equity analyst at stockbroker Hagreaves Lansdown, said: “It’s no secret the high street is losing its grip on consumers, sales are sliding everywhere from department stores to the likes of Superdry. With that in mind, Next’s lacklustre in-store sales aren’t a surprise. Therefore, the group’s decision to keep opening new stores may seem counter-intuitive, but the retail estate is actually a fundamental element to the success of the business.”
Ms Lund-Yates added: “Next has made it clear that the future of the business is centred on growth in online sales, but around half of all online orders are done through the click and collect service, and over 80% of returns are completed in store. That means that rather than cutting the amount of physical sales space, Next’s plans for evolution very much embrace bricks and mortar.”
Meanwhile, the company, led by prominent Brexiter Lord Simon Wolfson, raised the
prospect of the company benefiting under the provisional trade tariffs announced by the UK Government last week.
Next said: “In the (seemingly unlikely) event that these provisional rates are introduced in the near future, we estimate that there would be a net reduction in the tariffs we pay of around £12m to £15m.
“This saving would arise because the proposed reductions in tariffs from countries outside the EU would be more than offset by any increase in tariffs on goods we currently source from the EU and Turkey.
“In the medium term, our intention would be to pass on cost price improvements to customers, in the form of better pricing.”
Next said it was proposing a final ordinary dividend of 110p, lifting the total ordinary for the year by 4.4% on last year to 165p.
Shares closed up 2.6%, or 134p, at 5,316p.
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