Next sees better than expected Christmas sales thanks to strong online presence

Clothing brand Next attributes its better-than-expected performance in the latter part of last year to its extensive investment in online retail capabilities.

During the final quarter, full-price sales through its online channels increased by 9.1%, contributing to a year-on-year growth of 7.7% for the second half of the year. The brand particularly highlights the strong performance of its online services, which it attributes to improvements in customer service compared to the previous year.

In contrast, the full-price sales for its retail outlets remained relatively unchanged, increasing by only 0.6% for Q4 and 0% for the last six months of the year.

The brand experienced a 5.6% boost in full-price sales in Q4 compared to the same period in 2022. This led to a 5.7% increase in sales during the nine weeks leading up to 30 December compared to the previous year, resulting in a £38m improvement on the brand's initial estimate for the festive period.

The brand experienced a 10% increase in sales in the two weeks leading up to Christmas, but considers the sales performance to be "distorted" due to Christmas Day falling on a Monday. Instead, it recommends evaluating growth over the three weeks starting on December 10, which resulted in a 4.6% increase in sales. The rise in full-price sales is attributed to the retailer's "well-controlled" stock, as it entered its end of season sale with 12% less surplus stock than the previous year.

Online growth

According to data from Barclays, clothing stores experienced a 0.5% decrease in sales in 2023, attributed to inflation. This led to many clothing retailers resorting to discounts in order to clear their stock.

Discussing Next's online expansion during the holiday season, Retail Economics CEO Richard Lim notes that the retailer's ongoing digital investment is proving to be advantageous. "A divide is forming between retailers who have prioritized their digital offerings over the past decade and those who have not, and Next is at the forefront," he remarks.

Charlie Huggins, manager of the Quality Shares Portfolio at Wealth Club, supports this with analysis, stating that "Next's online sales were notably robust, indicating improved stock availability and exceptional operational performance. This sets it apart from other retailers such as Superdry, which have faced challenges in the current economic climate." Along with enhancing its online capabilities, the brand has also been focusing on loyalty programs, such as its Next Pay credit scheme and Next Unlimited delivery saver scheme, in order to retain customers within its ecosystem.

The year ahead

Looking forward to the upcoming year, Next states: "At first glance, the consumer environment appears to be more favorable than it has been in several years, although there are still some notable uncertainties." The company points out that the reduced strain on consumer budgets, brought about by increasing wages in comparison to inflation, has resulted in the most positive retail market conditions in 18 months.

The brand has acknowledged uncertainties, citing a potential weakening employment market as a possible offset to the opportunity presented by rising wages outpacing inflation.

In light of the brand's surpassing performance, it has revised its estimate for full-price sales in the upcoming year to a projected 2.5% growth in ongoing business.

At this time last year, the brand was exercising more caution. Despite a strong Christmas season in 2022, it issued warnings about the potential impact of broader economic weakness on its performance in 2023. Its forecast for the broader group, which includes the clothing brand FatFace that it acquired in October, is expected to increase by 6%.

Next has been active in making acquisitions over the past two years. They acquired 74% of the Joules brand in November 2022, followed by the purchase of the Made.com brand and its associated IP in December of the same year, and the Cath Kidston brand in March. Additionally, in September, they acquired a further 21% stake in clothing retailer Reiss, bringing their total control of the company to 72%. Next's CEO, Lord Wolfson, expressed their intention to make strategic investments that add value to the company, with the possibility of growing into a substantial conglomerate.