Despite Challenging Year Ahead, Next Eyes Acquisitions For Growth

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Next Plc CEO Simon Wolfson is looking at acquisition opportunities where it can use its Total Platform to increase the value proposition in attempt to turbocharge future growth.

Wolfson also said last week that the retailer will increase prices this year, but at a slower rate than year-ago levels, as he discussed a challenging retail year ahead.

In a Nutshell: Acquisitions have been relatively new activity for the Next, and Wolfson indicated that more could be on the way. The company last year formed a new division focused solely on investments led by Jeremy Stakol, who will eye opportunities that include acquisitions, the sale of third-party fashion brands though LABEL, the promotion of Next Total Platform to new clients, licensing deals and the sale of Next-branded merchandise overseas.

In addition to Made.com and Joules, which were acquired out of bankruptcy last year, the company’s other investments include the U.K. franchises for Victoria’s Secret and The Gap. The investments Next has made thus far delivered a profit of 16.8 million pounds ($20.7 million) to the Group in 2022, Wolfson said. On Tuesday, Next said it agreed to acquire Cath Kidston‘s banner and intellectual property assets for 8.5 million pounds ($10.5 million).

“In a world where many retail businesses are regularly bought and sold by private equity owners, Total Platform gives Next a means of adding value to an investment unavailable to purely financial buyers,” Wolfson said of one must-have criteria before taking a stake in a brand. Three other factors include a focus on great brands, great management and the right price.

“We are not the sort of business that makes ‘strategic’ investments, we only invest in businesses if we think they can deliver healthy returns on shareholders’ funds,” Wolfson said.

As for its Total Platform operation, the past year saw the addition of four clients: Reiss, which it acquired in 2021, Gap, Victoria’s Secret and Laura Ashley, which is under a licensing agreement. A new website for Made.com is scheduled for this year, and the development of the Joules website is currently slated for April 2024.

Wolfson said the company is also working on getting a new warehouse operational towards the end of 2023, improving and simplifying its process for developing platforms for new clients and creating a single code base as a template for configuring a new client website to shorten the time needed for onboarding. Those changes will allow Next to onboard more clients onto its platform as each new website will take less development time. Reiss took 11 months to develop its new website. In comparison, the Made.com site is projected to take just four months.

Looking ahead, Wolfson said price inflation is expected to be “more benign than previously thought.” While like-for-like inflation for Spring-Summer is expected to be up 7 percent, the increase for Autumn-Winter is forecaste to be up 3 percent. That compares with up 8 percent last year for Spring-Summer and up 6 percent for Autumn-Winter. His comments were in a trading statement in connection with the company’s annual results for the year ending January 2023.

Despite lower inflation expectations for the year, Next is forecasting for full-price sales to be down 1.5 percent, as well as a decline in Next profit before taxes.

“As it stands today, the Group has far more ideas and opportunities for long-term growth than it has had for some time,” Wolfson said. “And while the year ahead looks very challenging, we are not facing the kind of long-term structural obstacles that we have overcome in the past eight years.”

He noted three shocks that the company has survived, from the structural shift in shopping from retail to online, COVID and the cost of living squeeze due to high inflation. Online growth has meant capital investments in delivery and warehousing, he said, noting that the company has had to cut costs while racing to keep up with online increases as sales at brick-and-mortar have declined.

In the U.K., online customers total 7 million, or 25 percent of the U.K.’s 28 million households, and its 466 stores are in most major U.K. and Ireland trading locations. By category, the Next brand in women’s apparel is only 6 percent of the total U.K. market share, while women’s shoes are at 3 percent. Men’s is higher at 9 percent, and children’s are at 15 percent. Home is only at 3 percent. Given those levels, Wolfson said the Next brand is a “long way from reaching saturation.”

Wolfson said there are overseas markets where the company could expand, such as through partnerships with local aggregators such as Zalando. The company is exploring alternative business models that include licensing arrangements, and wholesaling or franchising products to local operators. While Stakol’s team will accelerate discussions in these areas, their initiatives shouldn’t bar the Next product divisions from developing “their own license arrangements.”

Net Sales: For the year, sales rose 8.4 percent to 5.15 billion pounds ($6.34 billion) from 4.75 billion pounds ($6.22 billion) in the same year-ago period.

Earnings: Profit before tax rose 5.7 percent to 870.4 million pounds ($1.07 billion), or 573.4 pence ($7.08) per basic share, from 823.1 million pounds ($1.08 billion), or 530.8 pence ($6.95), last year.

Chairman’s Take: “We have prepared—and budgeted—for a difficult year. We are very clear on our priories,” said Michael Roney. “If we continue to improve our product ranges, relentlessly manage our costs and upgrade our customer service, whilst also developing new business opportunities; we can lay the foundations for an exceptionally strong business and still deliver healthy profits, cash flow and dividends.”