Uncovering the Path That Turned Next into a Giant in Online Retail
Firing Up the Fun: Next's Online Success Story
Next's outperforming first-quarter results showcase its rising prominence as a go-to platform for online fashion shopping.
Digital sales, making up around 30% of total sales, witnessed a growth of 8.9% in the UK and a whopping 29.6% internationally.
E-commerce has been a significant revenue booster for the company in recent years, with projections of a 14% surge in online sales this year, despite a slowdown in the UK retail market. The international segment, in particular, is driving this growth.
Mamta Valechha, analyst at Quilter Cheviot, sees digital sales as a major growth driver for Next in the coming years, stating, "This channel is far from mature."
Analysts at Panmure Liberum concur, noting that Next's Q1 results underline its rising status as the preferred multi-brand fashion platform. They've boosted their target price for Next's share from 13,000p to 11,500p and classify it as a 'Buy'.
John Moore, senior investment manager at RBC Brewin Dolphin, believes Next is shining in a golden zone, balancing its brand, brick-and-mortar sales, and online sales.
"Next is on a roll, consistently delivering stellar results," Moore says, "Anything less than steady momentum would be considered a letdown, but the company shows no signs of slowing down."
What Triggered Next's Online Sales Boom?
Next got things rolling with Next Label back in 2006, using it as a platform to sell third-party sportswear.
Third-party sales on the Label have fueled substantial online growth. The company credits the gradual shift from in-store to online as instrumental to its growth.
"As time marchs on, the incremental changes have fashioned a fundamentally distinct business," Next revealed in its latest full-year report.
Most items, by revenue, are sold on a commission basis, with the remainder sold wholesale. In the UK, non-Next brands account for 42% of all online sales. Wholly-owned brands like Lipsy and Cath Kidson account for 18%, while third-party brands, including Nike, Adidas, and Skechers, make up the rest.
Internationally, non-Next brands account for just 20% of sales, leaving plenty of room for expansion.
Next has focused on partnering with third-party brands, obtaining equity stakes, and offering faster, more accurate delivery than "pure-play online competitors", according to Panmure Liberum analysts. They also highlighted the company's international business as a growth engine, driven by increased marketing investments, improved infrastructure, and the global rise of platform businesses.
The company operates conservatively, owning eight UK warehouses and seven distribution depots, as well as three international fulfillment centers.
Strategies Behind Next's Online Success: Insights Gleaned
While specifics about Next's strategies are scarce, general e-commerce optimization trends offer insights into strategies other companies might employ:
- Robust E-commerce Platforms: Firms often leverage powerful e-commerce platforms like BigCommerce to boost their online presence, providing optimized checkout processes, digital wallets, and sophisticated analytics for enhanced conversion rates and improved user experiences[4].
- Marketplaces: Some retailers create their own marketplaces to broaden their product offerings and reach wider audiences. This approach can attract more customers and provide access to a diverse range of products, much like Michaels' recent marketplace launch[2].
- Analytics and Insights: Leveraging advanced analytics tools like RetailNext is key. These tools help retailers optimize in-store experiences, which can inform online strategies by understanding customer behavior and preferences more deeply[5].
- Omnichannel Experience: A seamless omnichannel experience is vital. This means syncing online and offline channels for consistent customer experiences across all touchpoints.
- Incorporating latest technology, Next has added third-party sports brands like Nike, Adidas, and Skechers to its Next Label platform, fueling substantial online growth and contributing to an increased revenue portfolio.
- Recognizing the potential of online sales, Next has conservatively built up its infrastructure with eight UK warehouses, seven distribution depots, and three international fulfillment centers, ensuring efficient delivery for both its own and third-party brands.
- Following the e-commerce growth trend, Next has invested in marketing to expand its international business and has partnered with other brands, obtaining equity stakes, to compete effectively against "pure-play online competitors."
