Next plc

Desford Road
Enderby
Leicester LE9 5AT
United Kingdom
(44) 1162 866411
Fax: (44) 1162 848998
Web site: http://www.next.co.uk

Public Company
Incorporated: 1864 as J. Hepworth & Son
Employees: 19,000
Sales: £1.24 billion (US $1.9 billion) (1999)
Stock Exchanges: London
Ticker Symbol: Next
NAIC: 44812 Women’s Clothing Stores; 44811 Men’s Clothing Stores; 44813 Children’s & Infants’ Clothing Stores; 45411 Electronic Shopping & Mail-Order Houses; 442299 All Other Home Furnishings Stores

Next plc designs, manufactures, and distributes clothing and home furnishing and accessory items to nearly 330 Next retail stores and through the company’s Next Directory mail order sales catalog. Almost all of Next company-owned stores are located in England and Ireland. After ending a brief international expansion—in 1999 the company closed its seven company-owned foreign stores, including its five U.S. retail stores—Next has shifted its international strategy to brand expansion focused on franchising. Next operates franchises in some 20 international markets, especially in the Middle Eastern and Far East Asian markets. The difficult economic climate in the Asian markets in the late 1990s has curtailed the Next franchise expansion, however; after building to 43 franchised locations by 1998, the company entered 1999 with just 35 franchise stores.

At home, Next operations are divided into two complementary activities: retail stores and catalog sales. At the beginning of 1999, the company operated nearly 330 Next retail stores throughout England and Ireland, with total retail sales space of some 1.35 million square feet. Average store size is 3,500 square feet. Next, however, has been phasing out or extending its smaller stores—some of which are as small as 500 square feet—in favor of a larger multidepartment store concept with an average selling space of 14,000 square feet. Next retail operations provided more than £821 million of the company’s total sales in 1998, while representing more than two-thirds of operating profits.

Once a separate division of the company with its own product offering, the Next Directory catalog sales operations have been dovetailed with those of its retail stores activities so that, in the late 1990s, the two divisions offer the same product lines under the company’s “One Brand—Two Methods of Shopping” strategy. Next Directory offers a shop-at-home concept with fast delivery turnaround times of as little as one-day delivery. The hardbound catalog, which in ten years of existence has become something of a British shopping mainstay, is delivered to nearly 900,000 active customers, providing nearly £270 million of the company’s 1998 total sales.

Next pursues a strategy of selling almost exclusively company-designed clothing, accessories, and other merchandise under the Next and other brand names. In this way, the Next product offerings of womenswear, menswear, childrenswear, and home furnishings are available only through the Next retail and catalog channels. Targeted at an age range between 20 and 46, with a focus on the 25-35 age group, the Next product range features high-quality, contemporary but not trendy styling, priced at levels affordable to the company’s targeted middle-class market. The company employs its own design staff to keep an eye on seasonal trends and to create each year’s clothing offerings accordingly.

Manufacturing is done primarily on a contractor basis, guided in part by the company’s Hong Kong office. Next also operates several specialized warehouses ranging in size from 300,000 square feet to more than 600,000 square feet. Distribution to retail stores and to some Next Directory customers is handled by third party operators.

In addition to its retail store and catalog sales operations, Next offers financial services, particularly Next brand credit financing. Another growing division of the company is its Club 24 customer service subsidiary, which, under the Ventura name, operates call centers providing customer service and other services. Ventura’s participation in the company topped £100 million in 1998.

Next Plc has been guided by chief executive officer David Jones since 1988. The company trades on the London Stock Exchange.

From Tailor to Trendy in the 1980s

By the time of Next plc’s formation in 1981, the company had already been clothing England for more than a century. The company’s origins were with the operations of J. Hepworth & Son, Gentleman’s Tailors, founded in Leeds in 1864. Over the next 50 years, Hepworth & Son would expand, forming a nationwide retail chain of principally men’s clothing. The company would long remain a mainstay of the United Kingdom’s high street shopping districts.

Hepworth & Son’s continued expansion led the company to go public in 1948. By the late 1970s, however, Hepworth & Son had begun to suffer from old-age pains and, especially, from its conservative image. Led by chairman Terence Conran, however, Hepworth & Son made a bold move to remake itself completely at the start of the 1980s.

In 1981 the company acquired the Kendalls retail store chain. The Kendalls chain, with some 80 locations, catered to the womenswear market, complementing the Hepworth & Son menswear line. If Kendalls also complemented Hepworth & Son’s somewhat stuffy image, the acquisition would serve as a strong stepping stone for the company’s move to transform itself into a full-line clothing retailer.

With the Kendalls acquisition, Conran brought in a new chief executive, George Davies, and gave Davies instructions to reinvent the Kendalls chain. While remaining in the womenswear segment, Davies turned the company toward sales of company-designed and branded merchandise. This merchandise would be sold under a new name and retail store concept, Next, at the former Kendalls locations.

The first year of Next brand operations would see a turnover of more than £82 million. By the end of 1982, more than 70 Kendalls locations had been converted to the Next concept. The Next sales would provide steady growth to Hepworth & Son’s annual sales, which reached £108 million by 1984. That year saw the launch of a new Next brand range, men’s clothing, as the Next for Men retail store concept took over many of the Hepworth & Son retail locations. By the end of 1984, the company, still called Hepworth & Son, operated 52 Next for Men shops.

In that same year, Hepworth & Son extended the Next retail concept to open the first multidepartment Next retail store. Featuring the company’s lines of menswear and womenswear, the new Next concept, which opened first in Edinburgh, also included a shoes department and a café. The success of the Next concept continued to see the replacement of much of the remaining Hepworth & Son retail stores with Next for Men signage; at the same time, the company extended the Next name into entirely new locations. By the end of 1985, the company operated some 130 Next for Men stores.

The company also expanded with a new product category—and retail format—in 1985 with the launch of the Next Interiors concept. Featuring home furnishings under the Next brand names, the Next Interiors line also would be incorporated in the company’s growing numbers of multidepartment stores. The first Next store to feature all of the company’s product lines would open in 1985 in Regent Street, London. In that year the company also made a new acquisition, of rival clothing retailer Lord John.

Hepworth & Son had all but been replaced by the Next name. In 1986 this change was made official with the adoption of a new company name, Next Plc. One of the new Next company’s first acts was to make a new acquisition, that of the mail order business Grattan Plc. With this acquisition, the company began to prepare its entry into the catalog sales channel; the Next Directory would be launched—to great success—in 1988.

Meanwhile, Next had undergone an aggressive expansion. Apart from boosting the number of retail locations—which reached some 750, primarily single-department stores by 1986—Davies led the company on a diversification binge that would see the company’s revenues explode from £190 million in 1986 to more than £1.1 billion in 1988. By then, the Next empire would encompass not only the Grattan mail order business, but also the Salsburys and Zales jewelry chains, acquired by Next through parent Combined English Stores Group in 1987; newsstand operations, added with the acquisition of Dillons-Preedy, also in 1987; and an investment in the nascent British Sky Broadcasting Company.

The rise in sales brought about by the company’s increased operations did not, however, translate to a corresponding boom in profits. Despite turnover of more than £1 billion, Next would see only some £81 in net profits in 1988. Profitability for the diversified company proved only temporary; hit by rising costs, a heavy debt load, and increasing competition from a new field of smaller, trendy shops (emulating in part the Next concept), Next would see its profits slump into losses in 1989.

Company Perspectives:

Next’s mission is to be the natural choice retailer in the UK for fashion aware men & women who expect style, distinction & quality from their clothing.

Focusing in the 1990s

A boardroom battle ensued, costing George Davies his job. The CEO position was filled by David Jones, who had held that position for Next’s Grattan subsidiary. Jones led Next through a streamlining operation, bringing the company back to its core clothing and home furnishings sales by the early 1990s. The company’s noncore operations were sold off, starting with its jewelry store holdings to the Ratners Group in 1988, and ending with the sale of the Grattan mail order subsidiary to the German mail order specialist Otto Versand in 1991. In that same year, Next wrote off its British Sky Broadcasting investment.

The streamlining would prove costly for the company. By 1991, with turnover cut back to £878 million, the company posted a net loss of £445 million. Meanwhile, as Next shed its noncore activities, it also began streamlining its remaining operations. Whereas previously Next had manufactured much of its own range, it now began closing factories and outsourcing its production needs to third parties. The company’s restructuring also would see the closing of nearly half of the existing Next stores as the company dropped money-losing locations and moved to convert the Next brand from several store signs to a single, multidepartment format.

By 1992, the company was back in the black; the trimmed-down operation, now with some 310 remaining stores, saw its sales cut back to £462 million, with a profit of £11 million. To solidify its position, Next embarked on a new strategic drive of “One Brand, Two Methods of Shopping.” Whereas the company’s Next Directory sales had featured product offerings different from those offered by the Next retail store chain, the two sales operations now were brought together to present the same Next brand products to the company’s customers.

Next could then turn to new expansion activities. Until the 1990s, the company’s focus had remained entirely on the United Kingdom and Ireland. The company now sought to export the Next brand overseas. For this, the company would use multiple approaches. For entry into the Asian, Eastern European, and Middle Eastern markets, the company chose a franchising approach, partnering with local businesses with knowledge of their markets. In the United States, Next entered a joint venture partnership to import the Next brand. The first Next store opened in Boston in 1993, followed by four more U.S. stores by the mid-1990s. Finally, for the company’s entry on the European continent, the company chose to launch the Next brand in France, opening a company-owned store there. Another Next store would follow in Belgium.

Next also was seeking to branch out from the Next retail brand. In 1994 the company bought into a joint venture with Intimate Brands to operate that company’s U.K.-based chain of Bath & Body Works shops. Next also moved beyond retail, taking over operations of the Ventura customer-service and call-center service provider.

By 1995, Next’s annual sales had topped £650 million, for a net profit of more than £80 million. While the total number of company-owned stores had remained at slightly more than 300 retail stores, the company had engaged on a program of phasing out many of its smaller stores in favor of the larger, multidepartment Next concept. This was heightened as more and more stores began including the company’s Next Interiors line in addition to its men’s, women’s, and children’s clothing.

Next’s sales would boast strong growth in the second half of the 1990s, jumping to more than £1.1 billion by year-end 1998. In that year, however, the company renounced its North American expansion effort, which had been less than successful. The company’s five U.S.-based stores, as well as its stores in France and Belgium, were closed in April 1999. Regrouped around its U.K.-based retail and catalog sales operations, while focusing its international expansion around the Next brand franchise, Next looked toward the next century of retail sales.

Principal Subsidiaries

Next Retail Limited; The Next Directory; Next Financial Services; Club 24 Limited; Ventura; Clydesdale Financial Services Limited; Callscan Limited; Callscan Australia (Pty) Limited; Next (Asia) Limited; Next Distribution Limited.

Further Reading

“Next Brings the Flavor of England to N.Y. Area,” Women’s Wear Daily, August 27, 1997.

“Next Has a Knack for Hits,” Women’s Wear Daily, September 28, 1995.

Next Factfile, Leicester: Next Plc, 1997.

—M.L. Cohen

NEXT PLC

British fashion company

Established: May 1981 by George Davies in conjunction with J. Hepworth & Son. Company History: First womenswear chain opened, 1982; first dual Next/Hepworth store in Reading, Berkshire, 1984; Next for Men launched, 1984; first Next mini department store, Edinburgh, 1984; home furnishings range, Next Interior store, Regent Street, London, 1985; name change to Next plc, 1986; launched Next Cosmetics, 1986; merged with Grattans mail order company, 1986; womenswear divided into Next Too and Next Collection, 1986; lingerie introduced, 1986; boys-and girlswear launched, 1987; Next Directory mail order and Next Originals, 1988; jewelry stores opened, 1988; Department X stores in London and Glasgow, 1988; David Jones appointed CEO, 1988; retail and mail order merged, 1993; first U.S. Next store, Boston, 1993; joint venture with Bath & Body Works, 1994-96; opened Paris store, 1995; signed licensing deal with Shekem for three stores in Israel, 1996; sold seven company stores, 1998; sold credit-card unit, 2001. Exhibitions: All Dressed Up: British Fashion in the 1980s, British Council Touring Exhibition, 1990. Company Address: Next plc, Desford Road, Enderby, Leicester LE9 5AT, England. Company Website: www.next.co.uk.

Publications

On NEXT PLC:

Books

Davies, George, What Next?, London, 1989.

Huygen, Frédérique, British Design: Image & Identity, London, 1989.

Wilson, Elizabeth, and Lou Taylor, Through the Looking Glass: A History of Dress from 1860 to the Present Day, London, 1989.

Articles

"The Rise and Fall of Next," in the Daily Telegraph (London), 14 December 1990.

Gilchrist, Susan, "Next Fights Recession with 88% Profits Rise," in the Times (London), 30 March 1994.

"Buying British Pays Off for Fashion Firm," in the Daily Mirror (London), 30 March 1994.

Bethell, James, "Next Goes Streets Ahead of Its Rivals," in the Sunday Times (London), 3 April 1994.

Reed, Paula, "Good Value Ousts Designer Gloss," in the Sunday Times, 3 April 1994.

"Next (Company Profile)," in Retail Business: Retail Trade Reviews, September 1995.

Fallon, James, "Next Has a Knack for Hits," in WWD, 28 September 1995.

"Next to Shut Five U.S. Stores," in WWD, 26 June 1998.

"Performance of Next," in Investors Chronicle, 23 October 1998.

"Next Trading Update," in UK Retail Report, May 2000.

Fallon, James, et al, "British Retail Stocks Get Hammered," in WWD, 12 January 2001.

"Next Homes in on Bigger Stores," in In-Store Marketing, October 2001.

The brainchild of retail entrepreneur George Davies, the initial success of the British chain of Next shops during the 1980s is credited with having prompted greater awareness of the importance of good design in both clothing and fashion retailing on the High Street by traveling around the country to check out the existing competition. It is interesting to note that the two concepts he most admired were the upmarket German brand, Mondi, and the Italian company, Benetton. Elsewhere he found a lack of inspiration with what he described as the "buy it all approach to stock…in the hope that something would sell."

Davies' vision of what the High Street required was firstly, a strong store identity and, secondly, a high level of quality control over the garments, from raw materials to finished product. Davies believed the tailored jacket was the garment that could establish Next, so long as it represented high quality and fantastic value for the price. The first seven Next shops opened in February 1982 and the sales were twoand-a-half times what the company had originally estimated. Davies' philosophy of providing what he called "affordable collectables" found a ready market for his merchandise, which represented good design at reasonable prices.

Next offered the "power suit" at an accessible price when it was desired by female customers. Authors Elizabeth Wilson and Lou Taylor, writing in Through the Looking Glass: A History of Dress from 1860 to the Present Day (London, 1989), maintained that during the 1980s, Next brought together "…a fantasy of old-time shopping and 'aspirational buying'—the desire of newly affluent members of the 25 to 35 age group to wear an approximation of designer clothes."

Textile expert Brenda Azario believed Next's success was because, "Quality is what a customer expects or desires at any price point; this expectation has to be met. Next came in very strongly in this aspect, giving the public a better product. It wasn't a particularly expensive one but it was better—the designing was better and it was certainly better presented to the customer." There followed Next for Men, Next shoes, Next Interior (home furnishings), Next Two, Next Collection, lingerie, Next Boys & Girls, and Next Directory.

Next Directory represented what was perhaps the most significant achievement as it was the first company to try to raise the rather downmarket image of the mail order business. The catalogue itself was a beautifully-produced book with a matte black cover, featuring well-recognized faces from the modeling world, captured by established photographers in great locations. The early numbers even included fabric swatches of certain garments, all of which contributed to the widespread media coverage attracted by the Directory's launch, which revolutionized home shopping in January 1988.

The story of Next during the latter years of the 1980s to the early 1990s is renowned—a victim of over-zealous expansion paired with the recession that hit Britain during this period. Another factor contributing to the firm's demise was the failure of Next Directory to achieve the success predicted by Davies who invested £24.1 million into its launch. The fall of Next was as dramatic as its meteoric rise—a profit warning came in December 1988 and within two weeks there followed the unceremonious sacking of George Davies.

A dramatic restructuring ensued under the guidance of the newly-appointed CEO, David Jones. A large number of stores were sold off and the company raised cash by selling off its Grattan mail-order business. These measures, however, were not enough to fuel the relatively rapid rise of Next to its astounding profits, which doubled from 1992 to 1993. Improved customer service, new clothes displays, and larger fitting rooms were not enough to entice the customer to buy; the clothes themselves effected the turnaround. Next succeeded in recapturing the British customer of the 1990s, and by 1994 there were over 300 Next-owned stores across Britain and nearly half a million Next Directory customers.

According to journalist Paula Reed of the Sunday Times (3 April 1994), at Next clients received "basic, honest merchandise without pretension to status or glamour. What makes Next sexy these days is not a glossy image but a quick response to catwalk trends and a canny anticipation of what is next in style." A year later, Jones concurred in Women's Wear Daily (28 September 1995), "We have never been a fashion business. We sell good taste, good design and good quality." Near the end of the decade, however, Next faltered once again, having gone too trendy and neglecting its classics base. Sales in its stores as well as its mail-order business suffered declined, and the firm sold seven (five in the U.S., one each in Paris and Brussels) underperforming company-owned stores in 1998.

The new century brought a rollercoaster ride for British retailers; first a brief resurgence early on, then another decline with disappointing holiday sales in 2000. In 2001 Next sold its consumer credit business, about the same time the company's former CEO, George Davies, joined competitor Marks & Spencer to turnaround its womenswear division. Next garnered a turn of its own, however, with climbing sales for the Directory as well as its retail outlets. In the boardroom, Jones moved up to chairman, while Simon Wolfson assumed the duties of chief executive. By the end of 2001, Next was expansion-minded once more, closing smaller shops in favor of larger stores able to carry both clothing and its growing home furnishings collection.

—Catherine Woram;

updated by Sydonie Benét