The £1 billion profit club: What comes Next for the fashion giant?

To date, only three UK retailers have ever made it into the £1bn profit club – and fashion giant Next has just become the fourth member.

It seems the retailer’s cautious tone at the start of the financial year was somewhat misplaced, as the business raised its guidance three times in the last 12 months, reporting a final profit in the year to January 2025 of £40m above its initial forecast.

It joins the likes of Tesco, which has profits of more than £2bn, B&Q owner Kingfisher, which surpassed £1bn in profit in 2022, and M&S in 2008.

As ever, chief executive Lord Wolfson is keen not to jump the gun. “To some it may seem an important milestone…we do not share that view.”

“It’s nice to have the milestone, it’s encouraging but in itself, it doesn’t change the business,” Wolfson says.

In fact, the retail boss seems to downplay that Next is only one of two fashion retailers to ever hit the prestigious £1bn threshold. More so, as the rest of the industry is struggling with weaker sales in the wake of rising costs.

Wolfson warns there are “pitfalls of being overly impressed” with the £1bn profit figure, stating “We’d be foolish to be confident. One of the things you can’t be in retail is confident”.

That said, the retailer is forecasting a 5.4% rise in profits in its current financial year to £1.06bn, spurred by a 5% sales increase despite remaining cautious on consumer outlook. So how is Next looking for growth next?

Growing the Next brand

With £1bn in profit, it’s not surprising that the brand is nearing the top end of its potential in the UK. In fact, 42% of the group’s online sales are not Next-branded products – a testament to the rapidly expanding ecommerce platform the retailer operates.

Wolfson is confident the brand has future potential and has set his sights on expanding overseas.

Next is already selling in India under its licensing and franchise agreement with Myntra, as well as Nordstrom in the USA and mailing Europe.

In the next year, the retailer is hoping to grow a presence in Japan, China and South Korea. 

“We’re selling more of our products overseas, through other people’s networks and other aggregators like Zalando in Europe or Nordstrom in America,” says Wolfson.

Store expansion

For the first time in approximately five years, Next is embarking on a modest store expansion that will see 10 new shops, six relocations and two Home sites converted into new fashion stores.

While it’s predicting retail like-for-likes across the group will be down 2% next year, the addition of new space is expected to add 1.7% growth in sales.

“Although we’re expecting negative like-for-likes in the UK, there are still towns where we haven’t got a shop. We think we can open a shop and even if those shops have mildly negative like-for-likes for the next five years, they’ll still make profit,” Wolfson explains.

The additional stores will debut a new format, which Wolfson says will include “all the usual things you’ve seen, different flooring, different lighting”.

“I don’t think there’s any magic about the shop… we haven’t updated our shop [format] for a long time so it needed to move on,” he remarks.

Across the rest of the estate, much will stay the same.

Unlike his peers at M&S, Wolfson is not bothered about upgrading Next’s existing store estate or joining the rest of the sector in introducing self-service tills – something the business had previously considered to offset the £67m added to its tax bill arising from National Insurance hikes.

“The difficulty with the self-service tills is justifying the cost of retrofitting existing stores – the capital invested in those tools is too much to justify,” Wolfson explains.

Similarly, he’s not tempted to expand product lines in store to include some ranges from its successful online third-party partnerships.

“We would only ever do it in businesses where we had an interest or equity stake, because there just isn’t enough margin to sell other people’s brands in our shops,” says Wolfson.

The retail giant has Victoria’s Secret and Gap concessions in some of its stores, as well as most recently new Bath and Body Works shops adjacent to its stores.

The Zalando of the UK

Wolfson is not resting on his laurels now that Next has hit £1bn in profit – but he is viewing the retailer’s growth opportunities slightly differently.

Taking the group’s strongest channel – online – the chief executive is looking at new ways to bolster the proposition and has turned his attention overseas for inspiration, more specifically at Zalando.

Next plans to launch its own third-party online warehousing logistics service this year whereby labels that sell on its website can consolidate stock at the retailer’s own distribution centres to then be shipped when a customer places an order.

“That sort of light bulb moment was when we realized what Zalando could do for us in Europe, and we thought ‘this is a good service that they’re offering us, consolidating our stock holding, servicing our website and their own websites with one stock holding… why don’t we offer it in the UK?'” Wolfson explains.

He says it’s still early doors but shares that he hopes to have “one small client” as a trial this year.

Slowing down on acquisitions

Next has spent the last couple of years adding well-known brands to its portfolio, including Joules, Reiss, Made.com, JoJo Maman Bebe and Swoon, as well as taking stakes in the UK franchises for Victoria’s Secret and Gap.

Wolfson is typically tight-lipped on the retailer’s acquisition activity, but it seems that the chief executive is not rushed to make any further deals.

“We haven’t put into our budget any acquisitions this year. That doesn’t mean that we don’t expect something, but I think what’s really important to us as a business is that the teams don’t feel pressure to do deals.

“If they do, they will end up making mistakes and we don’t want to end up buying businesses because we feel we need to show progress,” he comments.

Perhaps his caution comes as Next recorded its second impairment charge worth £13m from JoJo Maman Bébé, the kids brand it jointly acquired in 2022 with a group of finance firms.

“We and our partners have made lots of changes in that business, and we hope that it will return to profitability,” Wolfson says.

Fluke or form?

Hitting £1bn in profit is a huge milestone for any business, least of all a fashion retailer – and it seems that Next’s latest trading update could be just the beginning.

Unlike Kingfisher and M&S, whose profits collapsed shortly after they hit the mark, retail analyst Nick Bubb argues that the retailer’s profits “won’t fall back”.

“Obviously Next has had more stable and better management than Kingfisher or M&S over the years and was ahead of its time in building a big online business and shifting it’s store portfolio to retail parks,” he says.

Wolfson argues that “it would be a big mistake to view the company differently just because it passed any milestone” – but perhaps his dissatisfied mindset will prove to be just the start of an exciting new era for Next.

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