Business

Next's store sales and profits keep falling

Next store Image copyright Reuters

Next's annual sales and profits at its High Street stores have continued their fall of recent years, while its online business continues to grow.

Sales in Next's stores fell nearly 8% last year to £1.95bn, while online sales rose by 14.7% to £1.92bn.

It said online was a "long-term threat" to its High Street business, but a "larger opportunity" for the group.

The retailer also said it could see "no evidence" that Brexit uncertainty was affecting consumer behaviour.

Overall, Next's group pre-tax profits for the year to January were in line with expectations at £722.9m, a fall of 0.4%.

Annual profits at its High Street stores fell by just over 20%, while online profits jumped by nearly 14%.

Total group sales, including the finance division, rose by 2.5% to £4.22bn.

'Comfort'

Next said 53% of its sales were now online.

It said the growth of online sales "represents a long-term threat to our retail business but potentially, a much larger opportunity for the group as a whole".

Richard Hunter, head of markets at Interactive Investor, said the difference between the fortunes of the stores and online was becoming "increasingly marked".

"The online business, which has long been the jewel in the crown, continues its growth apace with full-price sales increasing nearly 15% over the period.

"The fact that there is a slow transition to this channel... is of comfort, even though the additional costs of transferring in the form of warehouse picking and delivery, need to be carefully managed."

'Numb' over Brexit

Chairman Lord Wolfson, a prominent supporter of Brexit, said the retailer could see "no evidence" that Brexit uncertainty was "affecting consumer behaviour in our sector".

"Our feeling is that there is a level of fatigue around the subject that leaves consumers numb to the daily swings in the political debate."

If the UK government's provisional tariff rates were introduced in the event of a no-deal Brexit, Lord Wolfson said Next had estimated there would be a net reduction in the tariffs it pays of about £12m-£15m, as tariffs on goods imported from outside the EU fell.

In the "medium term", Next's intention would be to pass on price cuts to customers. "In the context of £1.7bn of stock purchases, the savings would be relatively modest," he added.

'Advantage'

Julie Palmer, an analyst at Begbies Traynor, said Next "continues to impress":

"The continuing success of its online and catalogue offering means the retailer has a significant advantage over its competitors, and continued investment in its online offering will guarantee future success.

"However it is not all plain sailing for this iconic retailer, with it suffering from a double whammy of falling High Street sales combined with higher staff wages which will continue to impact its financial performance. As such High Street store closures are on the cards in the coming year."

Image copyright Getty Images
Image caption Next said there was "no evidence" Brexit uncertainty was affecting consumer behaviour

Will we still want shops?

In its results statement, Next spelt out in some detail what it expects to happen to its store portfolio in the coming years.

It said its stores were still a "valuable financial asset and an increasingly important" part of its online business.

It pointed out it costs it less to deliver online orders to stores than to customers' homes and that more than half of online orders were delivered to stores, while more than 80% of returns were through stores.

However, in what might be seen as a warning to landlords it said that while retail costs were fixed in the short term, they were "likely to decline in the longer run".

"We are often asked 'how much less space will you need in the future?' It is the wrong question. We do not have too much space, we have too much rent, rates and service charge."

"The amount of retail space we trade in the future will depend on whether the cost of retail space adequately reflects the reality of retail trading conditions. Our guess is that there will be shops in fifteen years' time, but they will be fewer in number, possibly smaller and MUCH less expensive."

As an example, Next said last year it had negotiated a rent cut of 29% on the leases it renewed.

"We experienced a reduction of 25% on leases renewed in the previous year and we expect similar reductions in the year ahead."

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