Painful times for the Next generation

nextAgainst a backdrop of falling market share and a gloomy retail environment, Next has eschewed running its traditional heavyweight Christmas television campaign.

The move, revealed last week (MW.co.uk November 21), is in sharp contrast to the retailer’s strategy last year, when it launched an £18m ad campaign. The 2007 push was implemented by Next Group chief executive Simon Wolfson, who said that he wanted to inject “magic and excitement” into Next’s clothing ranges.

But he is reported to have said that this marketing blitz, handled in house, did not result in big sales increases.

Despite declining market share – from 8.3% of clothing retailers sales in 2005 to 7.7% in 2007, according to Mintel – Next is by far the most successful multichannel clothing retailer, combining its high street business with the Next Directory mail-order channel and ecommerce business.

The group increased operating profits and operating margins from £508m in 2007 to £537m in 2008. Its Next Directory business is “massively outperforming” the rest of the retail landscape, say experts. In fact, the strength of the direct business – sales through the directory, either online or over the phone – comes even as its high street sales stagnate and those of its rivals suffer negative like-for-like growth.

Yet Mintel senior fashion and retail analyst Katrin Magnusson warns that Next is not well-placed to fend off a recession. She queries the wisdom of relocating to larger out-of-town stores and points out that there is some evidence consumers are proving more reluctant to drive to do their shopping.

Next says its average selling prices have risen substantially and while Magnusson acknowledges this mirrors the trend for consumers to aspire to better things, she warns/ “The market is changing – consumers are starting to trade down and demand is likely to be weak.”

Experts are unsurprised by Next’s decision to cut advertising spend. Numis Securities analyst Nick Coulter says: “The advertising industry has seen a slew of cuts from the auto and retail sectors and we expect many to take a knife to their advertising budgets.”

Heartland customer

He adds that although Next is exceptionally well-run and efficient, its heartland customer is the middle-England married couple with two kids and a large mortgage. “If there is a maximum point of pain during a recession then the archetypal Next customer is it.”

Next has faced criticism for failing to keep in touch with “Heat generation” consumers as its brand moves up the age spectrum. Online fashion retailer ASOS, which earlier this month reported a 68% leap in first-half profits, is aimed precisely at this demographic. Although it is about 30 times smaller than Next, it is that key 16 to 34 segment Next is missing out on, say observers. In response to this, last month Next splashed out £17m on young fashion brand Lipsy as a new banner that will appeal to younger women.

Some suggest Next would benefit from segmenting its offer into a number of sub-brands, such as the move to introduce other branded labels mooted earlier this year. Coulter warns against going too far with this. He believes that the addition of Lipsy and high-end range Signature is sufficient and may compare favourably with rival M&S’s large number of sub-brands, which, he says, “all blur into one”.

“The Next brand value is to be affordable to most people and to be good or great value. If you start to split things up then it moves away from those core values,” he adds.

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