Next: Coronavirus will give us ‘breathing space’ to accelerate long-term growth
Next believes it could weather a loss of more than £1bn, or 25%, in annual full price sales caused by Covid-19 and that the business must embrace change despite the crisis.
Next will not slow down its investment in marketing and online systems during the coronavirus pandemic, instead seeing an opportunity amid the global crisis to accelerate its long-term business plan.
The high street retailer of course sees the outbreak as a major risk and is expecting a “significant downturn” in sales. However, it wants to ensure that its long-term goals are not lost amid short-term reactions to the pandemic.
“It is very important, particularly on systems, that we continue to move the business forward because at some point this coronavirus will pass and trading online is all about having great systems,” Next’s chief executive Simon Wolfson told Marketing Week on a call this morning (19 March).
“Anything we can do during this period, where actually volumes and all the systems problems associated with high volumes online will disappear, gives us a bit of breathing space to accelerate some of the developments we were planning on doing.”
Next invested £12.2m in its marketing systems in the year to the end of January 2020 and is expecting to spend a further £15m in 2021 – a 42% increase over the past two years.
The retailer spent £63m on online marketing in 2019, which is £13m (26%) higher than the previous year. Some £44m of this was spent on digital marketing (£33m in the UK and £11m overseas), a 23% increase on the prior year.
Our sector continues to experience profound and lasting structural changes and these changes are not on hold.
Simon Wolfson, Next
The overseas market continues to show huge growth potential for Next. For every £1 spent directly on digital marketing overseas, Next expects £1.53 of cash to be generated from incremental orders placed within the first year. Over 55% of all new customers acquired during the year to January 2020 came via digital marketing, and this is something Next will continue to invest in.
A 21% decline in spend on catalogues and photography, from £85m to £67m, means total marketing spend was down 3% year on year overall to £130m. Next expects to make at least £10m of further savings in photography and catalogue costs in the year ahead as customers increasingly choose to browse and shop online only.
Next is also hoping to ramp up its collaboration with third parties with the trial of a new initiative called Total Platform. The aim is to leverage the investment Next has made in its warehousing, call centres, distribution networks, customers, marketing and systems, and make those assets available to third‐party brands through their own dedicated bespoke brand website.
Next has agreed heads of terms with a third‐party business to build and operate their website for them. The website would look and feel like the client’s website but would be built on the functionality available on Next’s own website, along with its order by midnight for next‐day delivery promise, store collections and returns.
Uncertainty the greatest business challenge as coronavirus crisis deepens
Next has modelled some likely outcomes of the Covid-19 outbreak and believes it could sustain a loss of more than £1bn, or 25%, of annual full price sales. That means the retailer is “well placed” to weather the pandemic without seeking further assistance from outside the business. However, Next believes a 25% annual drop is a worst case scenario, suggesting instead that a 20% fall is more likely.
“Our sector continues to experience profound and lasting structural changes and these changes are not on hold,” Wolfson says. “Indeed, it is possible that the pandemic may accelerate the transition to online shopping. So we cannot afford to neglect our continuing efforts to transform every part of our business.
“This process of learning new ways to serve our customers, collaborate with partners and create value for our shareholders is a task that involves every function in our business. Our buying, sourcing, systems, marketing, warehouse, distribution and store teams are all having to re‐invent what we do to adapt to a rapidly changing world.
“It is the delivery of new product ranges, web systems, fulfilment methods, marketing techniques, warehouse capacity, business ideas, partnerships and more that will determine our longer term destiny. That requires a culture that embraces change and is not afraid to take risks ‐ no mean feat in a crisis.”