Next is planning to more than double its digital marketing budget in 2019 – funded by a dramatic reduction in investment above-the-line media and catalogue production.
Speaking at a press briefing this morning (25 September), chief executive Simon Wolfson told Marketing Week that print, TV and direct mail “definitely” no longer deliver the level of ROI they once did, while digital is generating “impressive” returns.
That means Next is looking to increase its digital marketing spend by 125% for the year to the end of January 2019 from £12m to £28m, with an increased focus on mobile marketing.
Meanwhile, the budget for direct mail, print and TV will be cut by 51% year on year from £23m to £11m. Next is also trimming back the investment in its catalogue business by 11%, down from £103m in January 2018 to £92m in January 2019.
To measure effectiveness, Next estimates what it calls an ‘internal rate of return (IRR)’, calculated from net cash flows from each campaign. Outflows include cost of creative and media, inflows profit from incremental sales.
While Next admits to a “degree of uncertainty” around which sales are genuinely incremental, the retailer says it generally assumes 10% of sales prompted by advertising to existing customers and 40% to new customers are incremental.
That means that online, Next has seen IRRs in the first half of the year in excess of 75%. For example, for one campaign an investment of £200,000 led to an uptick in sales of £335,000 over the following four seasons (which Next equates to a six-month selling period), most from new customers.
Transforming Next into an online business
While the retailer still sells “well over a million” catalogues each year and the catalogue appeals to Next’s “best customers”, according to Wolfson, online sales now account for almost 50% of the business. During the first half of the year, online sales rose by 16.8% to £892.3m, while in-store sales fell 6.9% to £925.1m.
Next has built enough capacity to increase its online sales by £1.5bn over the next five years. However, Wolfson thinks that while the shift to online will eventually slow down, the retailer needs to be flexible to ensure it is ready for any further changes to high street retail.
“Turning it from a retail-only business into an online platform that includes the stores, that process is still extremely arduous and hard but we’ve reached a point where this year it looks like we’ll be able to stabilise profits,” Wolfson explained.
“We’ve got the general direction of travel but we cannot predict the speed nor the endpoint of this change. Our job is not to try and guess where it’s going to end, but to make sure we are flexible and profitable enough, disciplined and innovative enough to make sure we can handle whatever the change is and we keep moving forward.”