After acknowledging the role of marketing in growing its online customer base by 40%, Next plans to increase its investment in online marketing by a further £15m next year.
This year the retailer plans to spend ‘at least’ £100m on online marketing, including the cost of staffing the department, after gradually increasing its investment in marketing professionals over the past few years. marketing, data scientists and marketing software. The result of these investments has been a “sustained increase” in measurable returns generated from digital spending, the company said in its half-year financial report today (September 29).
In fact, over the past six months, digital marketing has “outperformed” Next’s expectations, generating on average around £1 in net cash profit for every pound invested – well above the expected 50p return.
The company has therefore increased its marketing spend by £10m this year to £65m, and plans to test how far it can push spending without compromising its rate of return.
Next first announced plans to reduce investments in traditional media and shift spending to digital advertising in 2018. Marketing spend is now 100% online, with Next saying it expects no change in that strategy. By comparison, in 2017 Next invested just £41m in online marketing, while £69m was spent on print catalogues. The last catalog was printed in February this year.
In 2017, just £13m of total online marketing spend was on digital media spend. This figure has since increased by 400%, resulting in a 73% increase in Next’s online customer base over the past five years. Next now claims 8.4 million online customers.
Retail trade rebounds “stronger than expected”
On a two-year basis due to the unprecedented impact of Covid-19 last year, the group’s total statutory sales increased by 5.2% over the period to £2.1bn, while that full-price sales increased by 8.8%.
In the past eight weeks alone, full-price sales are up 20% from 2019, “significantly beating” the retailer’s expectations of 6%.
Six-month pre-tax profit was therefore £347m, up 5.9%. Next is increasing its forecast pre-tax profit for the year to £800m, up 6.9% from 2019 and up £36m from its previous forecast of £764m.
Broken down, online sales rose 52% over the two years, from £1bn to £1.52bn. Demand was particularly high in home and children’s clothing, Next said.Next to increase marketing spend above pre-Covid levels, but will not promote physical stores
Online growth therefore offset a 38% drop in in-store retail sales, which fell from £874m to £540m. Nonetheless, retail sales performed better than expected, Next said, as the rebound after non-essential retail reopened in April was “much stronger than expected”. Online sales also fell less than expected.
However, CEO Simon Wolfson warned that underlying conditions are “almost certainly” not as good as they currently appear. The combined effect of pent-up demand for clothing, record consumer savings rates and far fewer overseas vacations has boosted sales significantly in recent months, an impact that “must inevitably diminish over time”.
Nevertheless, Next is optimistic about a return to long-term growth, betting on the development of its own product lines, the acceleration of its customer base, the growing success of its Label third-party brand proposition, and the launch of its Total Platform activity.
Growing ambitions for Label
Development of the Next brand continues “at pace”, the retailer said. “Freed from the physical constraints of the four walls of retail stores, our product teams have flourished.”
The brand has also expanded into new product categories, from performance sportswear to outdoor furniture.
“In all of these efforts, we are guided and constrained by one fundamental principle – we must genuinely create value for our customers,” the company said.
Along with diversifying its own product offering, Next continued to expand the offering of third-party apparel, home and beauty products sold on its website, both by adding new brands and expanding ranges of existing partners.
“Our ambition remains simple: we want to be the most profitable third-party market entry route for our brand partners,” Next said.
Having struggled to profitably promote Label products through advertisements placed on third-party media, as a large portion of the profits go to partner brands, Next also began collaborating with select partner brands on co-funded external digital campaigns, reporting “very encouraging” results. that generate strong returns for both parties.
The retailer said it is looking to “aggressively expand” this program over the coming year and hopes to further increase awareness of Label’s offering.
Total Platform Performance
Meanwhile, Next said it expects to achieve online sales of around £50m through its total platform this year, generating £3m in profit, which is within its range. target.
Total Platform offers brands access to Next’s suite of online services, providing websites, warehousing, distribution and contact centers, and retail checkout systems. The retailer says the platform will “free” brands from time-consuming activities in which they have “little competitive advantage,” allowing them to instead focus on designing, buying and marketing their brand.
Earlier this month, Next acquired a 51% stake in Gap in the UK and Ireland in exchange for running its online business through Total Platform. Gap joins Victoria’s Secret, Aubin and Reiss, in which Next also claims significant stakes.
Next said it expects to see a profit contribution from this equity of around £7m this year, including £5m from Victoria’s Secret and £2m from Reiss.