Next booked a 18.6% increase in first-half net profit

Next booked a 18.6% increase in first-half net profit

After booking a "stellar" first-half performance, UK fashion giant Next Plc has detailed the progress it has made in upgrading the quality and design of its product ranges, new and improved sources of supply and the introduction of premium priced merchandise. 

The company's five priorities for the year include improving product and design, developing Retail stores as well as its Directory business in the UK and overseas, and the Label division.

Within improving product and design, Next said it has made a "considerable effort" to upgrade the quality and design of its ranges over the last three years. "Whilst it is hard to empirically measure any of these factors, we believe that collectively they have made a significant difference to the performance of our ranges." 

New supply sources and fast response
One of the retailer's main product priorities is improving value. New sources of supply, Next says, have allowed it to reinvest savings into improved quality across its ranges.

Speaking at a press briefing in London today (11 September), CEO Simon Wolfson elaborated on the new sources of supply. "It's mainly the development of countries that we're already in, who are increasing their capabilities," he told just-style.

For example, he said, countries like Bangladesh, which used to produce only very basic products, are now making a more advance product. This, Wolfson explains, is "allowing us to get mid-range price points at better prices than we were getting with from other more expensive sources of supply".

And the group believes there is scope to continue this process of upgrading its products over the next twelve months.

When asked about Next's fast response suppliers, Wolfson said: "We're going to moderately increase over the next couple of years the stock we buy closer to the season.

"It's important, but the most important thing is actually not ordering at the last minute, but actually taking bigger risks earlier and adopting new trends with conviction early in the cycle rather than trying to catch them last minute."

The comments come after the retailer unveiled plans to move away from a two season buying cycle to a four season cycle in March. The aim, it said, would be to increase the availability of cold weather clothing in January, February and March and warm weather garments in August and September.

Premium product
Another of Next's product priorities is the introduction of new premium product. The company said it has for winter this year "stretched our price architecture to include premium products selling at prices we would previously have shied away from".

The group hopes these ‘top end items', which will become more apparent as the year progresses, will inspire and help develop its core ranges. "However, we must be careful not to allow excitement at the top end of our price architecture to distract us from our financially more important core business," Next stressed.

Wolfson said the premium priced product will be a be a big part of its range, adding: "We know that our bread and butter is the core range". But at the same time, the CEO believes "it's important for us to try new things and sometimes we can price ourselves out or we can exclude ourselves from some fabrics, some factories, some embellishment techniques by constraining our price points".

"I think it's important, particularly where there's an important fashion trend, to try things at a higher price point," he added.

International business
During the last six months, Next has begun trading online in 11 new territories, including China. Commenting on this, Wolfson said: "We have put big caveats round China opening in China. I think because it's a very big country, people expect far more from it than it's actually likely to deliver in the short term."

China is hard to get right - logistically and administratively, he noted. Next intends to spend one to three years getting the logistics and the administration right. Only once it has sorted these out will the retailer "push for growth", according to Wolfson.

Although the opening has "gone well", he said the retailer does not expect the move to make a meaningful contribution to its overseas business for at least two or three years.

Outlook
In terms of the outlook for the general economy, Wolfson believes things are "on track". "The economy feels a much more comfortable place to be this year than it has done for the last five or six years," he said.

But, it might not be all plain sailing for Next, Wolfson implied. He said there is a risk for the company because it is at the top end of the mass market, and a lot of its customers have mortgages.

"A rate rise will moderate growth," he added. "My own view is that I don't think a rate rise is going to derail recovery, but I think it's an important factor that people should be aware of for next year. I don't think we're going to see a boom, because interest rates will inevitably moderate growth as a recovery takes place."

Click on the following links to see more news and analysis on Next's results: