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When the clothing and furniture chain Next acquired the shoemaker Russell & Bromley last week, two 19th-century UK retailers came together. It was not a merger of equals. Next, a FTSE 100 company with a market capitalisation of £16.5bn paid £2.5mn to buy Russell & Bromley out of administration and keep three of its 36 stores.
Next was once known as J Hepworth & Son, a clothing maker founded in Yorkshire in 1864. One man has led the business for most of this century. Simon Wolfson was appointed Next chief executive in 2001 at the age of 33 and is due to mark 25 years in charge in August this year.
Lord Wolfson, now 58, is widely regarded as the UK’s leading retailer. “People in business who make the same point repeatedly can be regarded as reassuringly consistent or painfully dull,” he wrote two years ago. The former quality has made him a firm favourite of investors, thanks to Next’s steady, predictable growth in earnings, dividends and share buybacks.
Wolfson’s financial discipline and retailing rigour have been integral to Next’s success as rivals have faced crises or failed in a competitive industry with tight margins. Next’s shares have risen by more than 45 per cent over the past year alone. “Execution is 95 per cent of the battle. Getting the detail right is the difference between success and failure,” he wrote that year.
The core of the business remains the same: selling what Next calls “aspirational products at accessible prices” through about 460 UK stores and an online platform. The Next label, developed at Hepworth by George Davies in the 1980s, designs clothes such as a £28 midi-dress, sources them from a global network of suppliers and delivers them to middle England.
But the Russell & Bromley deal is a sign of the direction in which Next has headed for several years, as Wolfson has broadened its retail and logistics platform into a virtual department store. Next’s site now offers shoppers hundreds of clothing, furniture and beauty brands as well as its own, from Gap and Victoria’s Secret to Made and Silentnight.
Some of these brands are retailers with their own stores and sites that benefit from added sales from Next shoppers, while others are licensing deals and a portfolio of brands that it owns or partly owns. Russell & Bromley is joining the latter group, along with Reiss, Fatface and Joules, the last of which Next bought out of administration for £34mn in 2022.
Such brands account for more than 40 per cent of online UK sales and are growing faster than Next’s own. From outside, it looks like an Amazon-like bazaar, much of it fulfilled from a logistics centre in Elmsall, South Yorkshire. But there is a purpose beyond making the most of its “Total Platform” logistics and fulfilment platform.
One benefit is that Next can now scoop up names such as Russell & Bromley, strip out their lossmaking activities (in this case 33 stores, along with up to 400 jobs) and add them to its platform. It makes them more profitable by keeping the companies’ brands, along with their design and marketing teams, and combining this with its sourcing and fulfilment capability.
Offering more choice also fits with consumers’ move towards “investment dressing”, with shoppers buying fewer items and being willing to spend more for higher quality. Most of the other brands that Next sells online have higher prices than its core label. This reduces the danger of them cannibalising orders for its brand, on which it makes a higher profit margin.
But the new breadth of Next’s offering places even greater weight on the guiding mind at its centre, making the portfolio mesh smoothly. Next also needs to guard the profitability of its physical stores against rising costs and maintain sales expansion into northern Europe and the Middle East. Wolfson’s eye for detail has made this formidable challenge work so far.
So it is understandable that the chief worry for many investors is that he will depart, although he has shown few signs of grooming a successor. Clive Black, head of consumer research at Shore Capital, says the company benefits from his “raw business talent, augmented by experience . . . Next’s biggest challenge is him leaving”.
All good things come to an end. Sir Brian Pitman, former chief executive of Lloyds Bank and chair of Next, took a punt by appointing the young Wolfson 25 years ago. Today’s Next board would struggle to match that return.