Having recognized the role of marketing in increasing its online customer base by 40%, Next plans to increase its investment in online marketing by an additional Â£ 15million next year.
This year the retailer plans to spend ‘at least’ Â£ 100million on online marketing, including the cost of department staff, after gradually increasing its investments over the past few years in marketing professionals, data scientists and marketing software. The result of those investments has been a “sustained increase” in the measurable returns generated by digital spend, the company said in its mid-year financial report today (September 29).
In fact, over the past six months, digital marketing has ‘outperformed’ Next’s expectations, averaging around Â£ 1 in net cash profit for every Â£ 1 invested, well above the expected 50p return.
The company has therefore increased its marketing spend from Â£ 10million this year to Â£ 65million, and plans to test how far it can push spending without compromising its rate of return.
Next first announced plans to cut back on traditional media investments and shift spending to digital advertising in 2018. Marketing spending is now 100% online, with Next saying it doesn’t expect any change in this strategy. By comparison, in 2017 Next invested just Â£ 41million in online marketing, while Â£ 69million was spent on print catalogs. The last catalog was printed in February of this year.
In 2017, just Â£ 13million of total online marketing spending was digital media spending. This has since grown by 400%, resulting in a 73% increase in Next’s online customer base over the five years. Next now claims 8.4 million customers online.
Retail trade rebounds “stronger than expected”
On a two-year basis due to the unprecedented impact of Covid-19 last year, the group’s statutory total sales increased 5.2% over the period to reach Â£ 2.1 billion, while as full-price sales increased 8.8%.
In the past eight weeks alone, full-price sales have increased 20% from 2019, “significantly exceeding” the retailer’s expectations by 6%.
Pre-tax income for the half-year thus reached Â£ 347 million, up 5.9%. Next is increasing its forecast pre-tax profit for the year to Â£ 800m, up 6.9% from 2019 and Â£ 36m ahead of its previous forecast of Â£ 764m.
Broken down, online sales rose 52% over the two years, from Â£ 1bn to Â£ 1.52bn. Demand has been 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 thus offset a 38% drop in in-store retail sales from Â£ 874m to Â£ 540m. Nonetheless, retail sales performed better than expected, Next said, as the rebound after the reopening of non-essential retail businesses in April was “much stronger than expected”. Online sales also fell less than expected.
However, CEO Simon Wolfson warned that the 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 significantly boosted sales in recent months, an impact that “must inevitably diminish over time.”
Nevertheless, Next was optimistic about the return to long-term growth, as it is banking on the development of its own product lines, the accelerated increase in its customer base, the growing success of its third-party brand proposition. Label, and the launch of its Total Platform activity.
Growing ambitions for Label
Development of the Next brand continues “at pace,” the retailer said. âFreed 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 patio furniture.
âIn all of these efforts, we are guided and constrained by a fundamental principle: we must truly create value for our customers,â the company said.
Along with diversifying its own product offering, Next continued to expand the range of third party apparel, home and beauty items sold on its website, both by adding new brands and expanding the ranges of existing partners.
âOur ambition remains simple: We want to be the most profitable third-party marketing channel for our brand partners,â Next said.
After struggling to profitably promote Label products through advertisements placed on third-party media, with a large portion of the proceeds going to partner brands, Next also began collaborating with selected 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 raise awareness of Label’s offering.
Total platform performance
Meanwhile, Next has said it plans to achieve around Â£ 50million online sales through its Total platform this year, generating Â£ 3million in profit, which is within its target range.
Total Platform provides brands with 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 focus instead 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 that equity of around Â£ 7million this year, including Â£ 5million from Victoria’s Secret and Â£ 2million from Reiss.