'New looks without evidence is a key to do fashion biz' - Next Chief

15 Apr '09

5 min read

• We came within the guidance for sales set out in March 2008. Retail like for likes were down -6.5%, within the guidance range of -3% to -7%. Directory sales were up 2.1%, just ahead of our range of 0% to 2%.
• Stock for the end of season Sales across Retail and Directory was down 10% as a result of realistic budgets and much improved stock control.
• We continued to make operational cost savings.
• We continued to invest in the Next Brand, spending £39m refitting stores, maintaining advertising spend and improving the quality and design of our clothing and Home ranges.

Group operating profit declined by -11.0% to £478m. Profits in the core Next Brand businesses (Retail, Directory, International and Sourcing) were down just -7%. The main decline elsewhere was in our outsourcing subsidiary, Ventura.

We have been much happier with the positioning and fashion content of our product ranges and in particular the improvements to our women's ranges. We have significantly improved the levels of newness introduced throughout the year and been more aggressive in backing new trends. We have been taking more fashion risks and taking significant positions in new looks without firm evidence that they will materialise into sales. Whilst this may seem counter-intuitive, the way for a fashion business to be successful is by taking fashion risks.

Next maintained its long standing practice of providing customers with certainty over pricing and was one of the few retailers not to mark stock down in the run up to Christmas. Whilst we recognise that this will have reduced our sales potential during this period, it allowed us to maintain our margins and significantly reduce markdown costs year on year.

Going forward we believe the increase in promotional activity on the High Street will continue, albeit that more realistic budgeting in the sector may result in less markdown immediately prior to Christmas. Next intends to continue trading at full price at all times, other than at our traditional end of season and mid-season Sales. Any increase in promotional activity must logically involve either the surrender of margin, or the artificial raising of initial prices in order to offer them as a “bargain” at a later date. Whilst some have made a success of this strategy, we do not believe that this would be right for the Next Brand.

Next's market position at the top end of the mass market is not the most comfortable place to be during a recession and we have two alternatives. We can make the best of our current position by providing customers with what they expect from Next; namely exciting, beautifully designed, great quality clothing and homeware. Alternatively, we could engineer our product ranges to lower price points at the expense of design and quality. We have decided that we will not devalue our ranges and will maintain our market position. We believe that in the long term this integrity will provide us with a solid platform for growth when the economy recovers.

That is not to say we can afford to be complacent about price. We believe there are opportunities to improve opening price points in some areas, without sacrificing quality and design content.

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