Retailer Next is poised to increase its online marketing spend after seeing an increase in ROI last year.
The 12 months to January 2022 have seen an increase in sales and profits at Next. Pre-tax profit of £823m represents a 140% increase on last year and a 10% increase on the pre-pandemic financial year 2019/2020.
Online sales increased to £3.1bn, compared to £1.4bn for brick-and-mortar retail. However, retail sales grew 50.1% year-on-year as stores reopened after the Covid-19 lockdown.
The company made significant capital investments in its warehouse and website technology during the year, crediting its ability to grow its online business for the strong performance. As it navigates the uncertain economic landscape of 2022, Next plans to further capitalize on its strength online.
We’ve found new, more effective ways to use digital marketing and that’s really what’s driven this surge.
Lord Wolfson, next
“In terms of online marketing, we will spend more in the coming year than we spent last year, although we will not release the exact amount we will spend,” the chief executive said. Lord Simon Wolfson at Marketing Week.
“We’ve found new, more effective ways to use digital marketing and that’s really what’s driven this increase. All the marketing we do, every campaign we do, we measure the return. As long as the investment marketing that we do reaches the investment thresholds that we have set, we continue to invest as much as possible.”
Explaining how much Next spends on marketing is performance-driven, based on current success the company is able to spend “more next year than last year.”
Although spending is likely to be spread over the year, an expected rise in media prices at the end of the year could lead to more activity sooner, Wolfson added.
“The only caveat is that towards the end of the year we think it’s likely that with the World Cup approaching there could be a price increase and that could push up costs. the other way. I guess we might see some moderation in spending at the end of the year. But I think that will be more than offset by what we spend the rest of the year,” he said. -he declares.
There are no plans to increase marketing spend around Next stores, with Wolfson saying window displays are the “most effective marketing stores have”.
Wolfson says Next had a better-than-expected year in 2021, in part due to underlying strength in UK consumer spending.
“We think it was about spending the pent-up savings made during lockdown. As we enter next year, we enter a very different consumer environment and in many ways the strong comparisons from last year make the year ahead even more challenging,” he said. declared.
Store sales have improved since the end of Covid restrictions. The retailer now expects its UK online business to grow by 4-5% annually, while its physical retail business will decline by around 7%. Wolfson explained that his prediction had changed to become less pessimistic on physical stores and slightly less optimistic on online performance.
The hit from closing operations in Ukraine and Russia, which the company says will be around £18m, will be partly offset by the changing margin mix this creates in the UK .
Next also credited its rapidly growing third-party brand business for “another exceptionally productive year.”
“We have weathered the pandemic and the structural changes affecting our industry, to achieve record sales and earnings per share,” Wolfson said.
“We entered the pandemic with a well-established online business and a diverse product offering. This allowed our online business to make up for much of the sales we had lost in retail; and adapt to the dramatic shift in sales between different product categories experienced during lockdown.
The company warned of mounting cost pressures that are expected to hit consumers in the form of higher prices later this year.
Analysts have reacted positively to the retailer’s performance, saying it is now well positioned to weather inflationary challenges ahead, although they question the divide between in-store and online sales.
“The disparity in Next’s online platform and store performance is stark, with two-year comparisons 44.6% higher and 22.7% lower, respectively,” said Emily Salter, senior analyst at Globaldata. .
“Next has simply created a more compelling and relevant proposition online with its wide range of products and brands, and while it continues to innovate in its stores, for example by adding a Gap concession to its flagship store in Oxford Street, online will continue to far outperform in fiscal year 2022/23.”
The closure of operations in Russia and Ukraine, coupled with a deteriorating inflation outlook in the UK, will be a challenge. However, Salter thinks Next’s positioning in the mass market and presence of more essential products, especially children’s clothing, should help the retailer weather the storm.