UK Roundup: Numbers From Next, John Lewis
Falling U.K. inflation has been good news for retailers across the pond.
“After a rocky start to 2024, inflation is once again on its way down,” British Retail Consortium’s director of insight Kris Hamer said earlier this week. “February’s figures were driven by falls in food and clothing and footwear as well as cheaper energy prices.”
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U.K. data on Wednesday showed that inflation fell by 3.4 percent, representing the slowest pace of inflation in more than two years. That resulted in the Bank of England leaving interest rates at 5.25 percent. Policymakers at the central bank are targeting a 2 percent inflation rate, much like the Federal Reserve in the U.S., which also left rates unchanged on Wednesday. Fed chief Jerome Powell said that he foresees three rate cuts later this year.
With inflation gradually slowing, that has left more money in consumers’ pockets for discretionary spending. British retailers Next Plc and John Lewis Partnership posted full-year results that were in the black, with both retailers optimistic about the new fiscal year ending in January.
However, struggling retailers can’t seem to find a break. This month saw the placement of five fashion retailers put into administration, the U.K. equivalent of a U.S. bankruptcy proceeding.
Next CEO Lord Wolfson on “entering a new era”
Earnings results from the retailer Next are often viewed as the bellwether for U.K. retail. On Thursday, the British fashion and home retailer posted full-year results and, more importantly, kept to its outlook provided in January in which it expects to record profits of 960 million pounds ($1.22 billion) for the full year ending January 2025. Next’s profits jumped 16.9 percent to 1.02 billion pounds ($1.29 billion), on total group sales growth of 5.9 percent to 5.84 billion pounds ($7.42 billion).
“It has been a long time since we started a year in a more positive frame of mind,” the ever-cautious Wolfson said in the company’s annual report. “Perhaps more encouragingly, we enter the financial year with new avenues of growth along with a cost base that feels under control.”
One plus for the new fiscal year is that wages are rising faster than inflation, he said, adding that the retailer doesn’t expect to increase prices now that selling-price inflation has reverted to more normal levels. Wolfson also provided an update on the Suez Canal as shipping delays persist in the conflict-ridden Red Sea: “We do not currently anticipate any material adverse impact from stock delays. On average, transit times have been extended by 7 to 10 days and our product teams have adjusted the timing of their contract bookings to account for this delay.” And even with higher freight costs factored into selling prices, Wolfson said the company is still anticipating that it won’t need to raise prices.
He noted that the company has evolved much in the last seven years, and that in many ways, “it feels like we are now entering a new era.” Over that period, the company has onboarded third-party retailers onto Next’s Total Platform e-commerce hub to enable them to sell goods online. It has also made a number of acquisitions, including Joules and Cath Kidston. And Next has also taken control of Reiss, a U.K. global fashion brand for women’s, men’s and children’s apparel.
Looking ahead, Wolfson said Next’s three areas of growth focus on playing to a wider audience. That includes growing the Next brand overseas, developing new brands and licenses, and generating revenues from its Total Platform operation. He also noted that in a single year, the Next brand produced over 75,000 different products that attract a wide range of consumer tastes, lifestyles and budgets. Wolfson also said the company will invest in “alternative trends, fabrics, price points or products [for Next, which] is rarely a mistake, if we believe in them.” And he said that the company’s equity investments in Total Platform is “now making a meaningful contribution to our profits.”
Wolfson noted that the Next’s 825,000-square-foot, flat-packed stock warehouse in U.K.’s South Elmsall location will increase Next Online’s current capacity by 50 percent, helped in part by automated picking that began in March and in October, the start of automated packing.
He said that the company has had more success closer to home, in part because consumers are more aware of the Next brand and because it is able to distribute goods on short lead times at reasonable prices. That’s more difficult when selling to the Far East and the Americas. To grow in those areas, Next has considered partnerships with local retailers and aggregators either via wholesale or franchise agreements. One “very encouraging trial” is with U.S. retailer Nordstrom, Wolfson said. “We have agreed terms with a second major U.S. retailer and are in active discussions with several others,” the CEO added.
John Lewis also sees profit growth, but job cuts loom
The employee-owned John Lewis Partnership—full-time employees are called partners—returned to profitability after three years of losses, helped by a “refreshed” turnaround plan from CEO Nish Kankiwala, but there was no partnership bonus paid this year and job losses continue to loom on the horizon. Kankiwala, who joined the retailer last year, updated the plan with a focus on creating a greater retail experience for customers that includes modernizing its technology and refreshing its shops. It also includes simplifying its operating structure.
But operating on a simpler model will result in fewer jobs as some positions will no longer be needed. The company didn’t provide any clarity on which components of the operations would be impacted, nor did it state how many jobs could be lost. There were reports earlier this year that the retailer could shed up to 11,000 jobs over a five-year period.
The company also said that investing in partner pay and improving the business must continue to take priority over paying a bonus.
“We have made significant progress in the last year to return the business to profitability and delivered results that allow us to increase investment in our retail businesses; we expect profits to grow further this year,” John Lewis chairman Sharon White said. “This shows our plan is working, while we know there’s much more to do.”
For the year ended Jan. 27, the company posted before-tax profits of 56 million pounds ($71.1 million), against the year-ago before-tax loss of 234 million pounds ($297.2 million). Revenue rose 2.4 percent to 10.78 billion pounds ($13.69 billion). Sales at its Waitrose food business rose 5 percent, while sales at its John Lewis department store operation fell 4 percent. Fashion and beauty sales were up, offset by weaker sales in home and technology.
The company said trading operating profit at John Lewis of 689 million pounds ($875.1 million) was 13 million pounds ($16.5 million) better than a year ago as the business converted sales into greater profit, helped by efficiency savings across supply chain and stores.
Ted Baker UK collapse puts 1,000 jobs at risk
The holding company for Ted Baker’s U.K. and European retail and online business, No Ordinary Designer Label (NODL), was put into administration on Tuesday. The filing does not impact Ted Baker’s U.S. operations.
Ted Baker was acquired by Authentic Brands Group in October 2022 for $254 million. Authentic inked a deal with AARC Group to operate the fashion retailer’s 120 retail stores and concessions, as well as its online business. But trouble surfaced earlier this year after AARC failed to meet its financial obligations. Authentic is on the hunt for a replacement operating partner.
Frasers Group puts Matches into administration
Three months after Frasers Group acquired online luxury fashion retailer Matches—formerly Matchesfashion—in December 2023 for 52 million pounds ($63 million), the company put it into administration on March 8. And one week later, Frasers also placed kids apparel retailers Base Childrenswear, Kids Cavern and Flannels Junior into administration.
Frasers acquired the Base Childrenswear and Kids Cavern retail operations as part of a deal with JD Sports in December 2022 for 14 businesses having a deal value of up to 47.5 million pounds ($57.9 million). The two businesses operated a total store count of seven that were rebranded as Flannels Junior.
As for Matches, about 273 employees will be immediately impacted via layoffs. About another 250 or so could remain in place as administrators try to find a buyer for the operation.
“Since Frasers Group plc acquired Matches, the business has consistently missed its business plan targets and, notwithstanding support from the Group, has continued to make material losses,” Frasers said in a statement. “Whilst Matches’ management team has tried to try to find a way to stabilise the business, it has become clear that too much change would be required to restructure it, and the continued funding requirements would be far in excess of amounts that the Group considers to be viable.” Frasers reiterated its commitment to the luxury market and its brand partners.
Separately, Frasers reportedly acquired cycling and multisport retailer Wiggle Chain Reaction Cycles out of bankruptcy earlier this month for less than 10 million pounds ($12.7 million). It was Mike Ashley’s sports and fitness retailer Sports Direct that acquired department store chain House of Fraser out of bankruptcy, after which he renamed the company Frasers Group.
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