How did Next become an online shopping behemoth?
A better-than-expected set of first-quarter results from Next this morning has highlighted its growing reputation as an online fashion platform.
Online sales, which account for around 30 per cent on overall sales, grew by 8.9 per cent in the UK and 29.6 per cent internationally.
Internet-based sales have been a bigger driver of revenue over the last few years than retail – the company has projected a 14 per cent rise in online sales this year despite a slowdown in the UK retail market, with growth particularly propelled by the international segment.
“[Online sales] will be one of Next’s key drivers of growth over the next few years, as this channel is far from mature,” Mamta Valechha, consumer discretionary analyst at Quilter Cheviot, said.
Analysts at Panmure Liberum similarly noted that Next’s first-quarter results “highlight [its] growing status as the preferred platform for multi-brand fashion”.
Panmure analysts increased the target price for Next’s share from 13,000p to 11,500p – the stock currently sits at 12,390p – and rated the stock a ‘Buy’.
John Moore, senior investment manager at RBC Brewin Dolphin, said that Next is in a “sweet spot” in terms of its brand, brick and mortar sales, and online sales.
“We’re reaching the point with Next where anything other than solid momentum and exceeded expectations would be considered a disappointment, but the company continually delivers and shows no signs of stopping any time soon,” Moore said.
How did Next harness online sales?
Next kickstarted its marketplace, Next Label, back in 2006 as a way to sell third-party sportswear.
It has since successfully leveraged third-party sales on Label, where brands other than Next are able to sell their products on its platform, to drive significant growth online.
The company has described a slow evolution from in-store to online as “key to [its] growth”.
“Over time, the cumulative changes have produced a radically different business.
“From shops to online, from one brand to an aggregator of over 1,000 third-party brands, and from a UK-centric brand to one with increasing global reach,” .
The majority of goods, by revenue, are sold on a commission basis with the remainder sold on a wholesale basis.
Non-Next brands now account for 42 per cent of all Next’s online sales in the UK.
Wholly-owned brands, which include Lipsy and Cath Kidson, account for 18 per cent of this figure, while third-party brands – including Nike, Adidas and Skechers – account for the rest.
Internationally, non-Next brands account for just 20 per cent of all sales, leaving significant room for growth.
The company has focused on partnering with – and taking an equity stake in – more third-party brands, as well as new licenses and faster and more accurate delivery than “pure-play online competitors”, Panmure Liberum analysts found.
Panmure analysts added that the company’s international business “continues to be an engine of growth driven by both higher marketing investments, better infrastructure and the global acceleration of platform businesses.”
The conservatively-run business owns eight UK warehouses and seven distribution depots in the UK, plus three international fulfilment centres.