Is Next’s business model strong enough to survive the next half of the Networked Era?
I bought my first suit from a Hepworth’s store in Dartmouth in Devon, from Mr Tregunnen, a family friend who, during my childhood, would let me watch the annual Regatta fireworks display sitting on the green beige cutting table on the first floor mezzanine of the shop. You probably haven’t heard of Hepworths, which began life way back in 1864, in Leeds, but it was reborn as Next in the late 1980s and most everyone, in the UK at least, has heard of it.
Under George Davies’ leadership the company was rebranded and it grew, by both acquisition and organically, at breakneck (I initially wrote breaknext, which is not far from the truth) speed – for which Davies was not without his critics – but the business survived and it has had a more tranquil evolution since he left, in 1988, after seven years of rapid growth. The acquisition of Grattan catalogues, in 1987, shifted its focus away from bricks alone before that was an issue for most retailers and it has given it an easier entry than most into the new internet world – about a third of its £3BN plus revenues now coming from catalogues, mostly internet shopping.
Catalogues have been around a long time and have always been a part of the retail channel mix, so there is no doubt that the acquisition of Grattan was a smart move. The internet protocol suites (TCP/IP) had only been standardised in 1982 and commercial ISP’s only began to emerge for the first time at the end of the 1980s, but since the mid-1990s the internet has clearly had a dramatic effect on the shape of the retail world. Although Grattan was sold on in the early 1990s by then the Next Directory was established. I guess we’ll never know if this was prescience, or luck, for Next, but a fortunate move for it never the less. Other retailers, with a similar track record but no catalogues, have struggled far more.
In a trading update, ahead of next month’s interim results, Next has revised its full-year profit guidance upwards – it reported a 4.5% increase in total sales for the 26 weeks to the end of July: bricks sales where flat, with out-of-towners holding up the high street stores, but catalogue sales, mostly over the internet these days, were up by 13.3%. Next may have been lucky with Grattan, but it has been wise in moving most of its bricks away from our boring, shabby and decaying high streets.
I am increasingly frustrated shopping the old way: I tried to buy a camera the other day from a brick shop and had to go back three times, only to find out it still hadn’t come in, so I bought it online and it was delivered in two days. There is no doubt in my mind that the modern electronic catalogue has so many advantages, to both customers and retailers, that it will continue to spread its scope of influence. Having an online catalogue/store is one thing but the next big challenge is stock availability, which you would have thought would be much easier with an online model and why I doubt the longer term success of Argos’ recent incarnation as an order-online-pick-up-in-store business model. Stores with too high a reliance on bricks tend to have stock too widely distributed and that is hard to manage and from my personal experience it leads to longer lead times.
Next of course has an even bigger challenge than all this, it is up against Zara, at least in part and it is competing on something much harder to replicate, timeliness and responsiveness of its supply chain. Today we want products that are up to date, always available, delivered quickly and at an acceptable price. So, what’s next for retail? What’s next for Next? Well, some of the current incumbents will manage the changes required but most won’t and new folk will appear on the scene with a clean sheet of paper and create new business forms without having to remodel the old ones. For whatever reason, Next has probably done enough to be one of the survivors, so long as it can match the likes of Zara for fashion and style but, in contrast, I personally think Argos is still too attached to its bricks.