Please use your microphones in front of you, unless you're sitting in the front row, in which case they are at your side. Richard?
Thank you. Morning, Richard Chamberlain, RBC. Maybe I can just start with a couple on costs, if that's all right.
When you say start with a couple on costs, just remember, you've gotta start and finish.
I'll start-
With a couple of questions, yeah.
... the session rather than-
Yeah, oh, I see.
... start my streak. Yeah. So, Simon, maybe this, you can just give an update on your thinking on sort of ongoing staff costs, if that's all right, you know, store and warehouse in the light of the recent court case. And I guess the thinking behind, maybe not creating a provision, for that, for that outcome. And then the second one is on freight. Should we expect that now to be a tailwind from the second half, despite the sort of longer transit times and so on? Will that be now becoming a tailwind for the second half of this year and next year? Thanks.
Okay, so both good questions. So first of all, on staff costs, but putting aside the equal pay claim that's been made against the company, I think it looks to us likely that the national average will continue to rise ahead of inflation, and as I said in the presentation, we don't think... We think we've kind of got to the bottom of the barrel in terms of productivity improvements, so I think now the faster it rises, the more that will erode retail profitability. Obviously, if the equal pay claim is successful, that will also erode retail profitability. We have written a very detailed one-page statement in the statement, and I was told not to wing it and to refer everybody to that because, you know, it is a legal case.
But if you read that, we're very clear that, one, this is gonna be a long process, you know. Two, we believe the tribunal erred in law. We will be appealing it, and, our legal counsel is very confident of our grounds for appeal. So I would encourage you just to read that page, or I can read it out to you. Yeah. The other thing was freight, just very quickly, tailwind or headwind. I think it's too early to say. The freight market's very volatile, and, you know, I think, you know, if some miracle happened and the Suez Canal opened, then yeah, we'd have a tailwind relatively quickly. We've brought forward most of our freight, so you shouldn't expect any benefit this year, one way or the other, from freight.
Hi, good morning. William Woods from Bernstein. The first one's just on home. Home obviously outperformed in the first half. What's going on there? And then the second one is, you're saying that you're not getting the third parties to pay for space on the website. Do you see an opportunity in what is called retail media and getting people to advertise on the platform? Thanks.
Yeah, really good question. So first of all, home. Home, you know, has had a torrid three years since COVID, when we had this huge boom in homeware, and it's still recovering from that, plus the sluggish housing market, and we did see a recovery in the first half, and we expect, we are more positive about home for the second half than we were, than we have been for some time, but just as fashion disbenefited from the cooler weather, home really benefited, so actually, when you have a very hot summer, with the exception of a bit of garden furniture, which is a small percentage of it, actually, it's really bad for the home business. We nearly showed you this, actually. We decided it was going into too much detail.
But if you looked at the cumulative sales for home and cumulative sales for fashion, the first half fashion, first quarter, fashion was ahead, and then they literally just crossed over in the second quarter. And so we think there's a weather benefit there. So I think the message there is don't get too excited about home until you see the housing market moving. On paid-for advertising, look, our view at the moment is that it's not the right thing to do. You know, the advertising that we do on site, it's our own product, other people's product, whatever we think the customer most wants. And our view is that the brand, if you like, pays for that through the commission they pay for us. I think once you...
I'm worried that once we start allowing people to pay for space, our customers will begin to not see what they most want to see, but what the richest or the brand with the biggest pockets wants them to see, and I'm not sure that's right, so we're not gonna do that at the moment.
Excellent. Thanks.
Okay. Yeah, sorry.
It's Adam Cochrane from Deutsche. A couple on overseas, if I can. In terms of your product design, the sort of increasingly the fashion being the same across markets, does that mean you don't intend to design product specifically for overseas markets? Excuse me. So is the U.K product being sold overseas? And then secondly, on the growth in aggregators, would you be able to hazard a guess at whether it's a growth in the number of aggregators that you are selling on, those aggregators taking more of your product, or those aggregators putting more of your product into more of their markets? Thanks.
Yes. So on the aggregators , which I'll answer first, it's all three, but I'm not going to give you the proportion, but what I can say is we are getting very good growth on like-for-like product, on like-for-like aggregators. But we are also expanding territories with aggregators, increasing our product offer with them. Underlying, we are also seeing like-for-like growth in most aggregators, in most territories. In terms of design, we don't, we haven't, and aren't designing products specifically for territories. That doesn't mean that it isn't influencing the sort of things that we buy, because ultimately, the things that we buy, our buyers buy, are most influenced by the sales that we're taking and the influences that they're getting.
So if we start to see, you know, certain products selling really well, because there's a, you know, an overseas event, Eid, Diwali, or whatever, then our buyers will begin to buy for that just because they're seeing it in their sales number, not because they're thinking, "I wonder what somebody wants in one part of the territory." So it's not something we're doing in any meaningful way at the moment. What is interesting is that where we have done it, the product, if it's successful, has done as well in the U.K as it's done overseas. The best example of that was where our...
When we had a Russian business, we produced a whole load of very, very warm children's wear, you know, - 25 coats, and we actually ended up selling them really well, but more than half of them were sold in the U.K. All right.
Thank you. Good morning, Warwick Okines from BNP Paribas Exane. Two on the overseas as well, please. The first is, could you just talk about the relative performance of kids versus men's and women's? I think originally kids had the most momentum, but perhaps more momentum in women's and men's more recently. But just talk about that. And then secondly, the risk is the answer is just a blunt no, but-
Yeah.
But does to-
You know it's going to be a no.
Yeah. Does Total Platform and what those brands are doing and your third-party brands sort of play into the international strategy at all? Are there opportunities to sell third-party brands on the Next website? Are you learning from Total Platform customers, brands, and companies and what they do internationally?
Yeah, it's a. So, in terms of the product mix, I'm not going to go into product mix performance overseas because I think it's quite commercially sensitive, so it's not something I really want to push into. Broadly, children's wear is still our biggest category, but we are getting, we're now getting traction across the board, and most of our, in all of our major product categories, we are getting good growth. In terms of Total Platform, I think where Total Platform has been instructive is it, you know, in some of the third-party relationships that our eyes have been opened to, and in some cases forged by having that relationship. You know, I think it was easier to talk to Nordstrom once we owned Reiss and had an excellent relationship with them than before.
All of those brands are already on our own website, and we do sell them overseas. So if you remember that sort of grand chart with the two fronts growth, we do expect to grow our wholly owned business overseas and some third-party brands overseas as well. But there again, I think the trick is there's no point in trying to sell a well-known international brand that has its own business in India, you know, shipping it by air all the way. So the places where we're most successful selling the brands that we don't own are the territories in which we have our own operations. Good. Okay, next. Yeah.
Hi, it's Georgina Johanan from J.P. Morgan. Two, please. First of all, just in terms of the retail business, obviously, where you've talked about sort of the ability to hold the margin being a bit less going forward, is there any thinking on, maybe investing in the stores a bit more, sort of refreshes and so on? Just how you're thinking about that on a midterm basis, please. And then second one, just a quick one on the current trading. I think just because of what you shared on the U.K core, it implies that obviously the contribution from overseas and Label has deteriorated. Perhaps I missed something, but is that just a comp issue, or is there something else going on weather-wise or whatever? Thank you.
No, it's just that the U.K number is by far the biggest in that, in that period, so it's to do with the relative size. I don't think we've seen any easing off of growth overseas. In terms of refreshing stores, now. So there are two things I'd say, and, the first is, we think maintaining our stores, looking great and being a credit to the brand is really, really important. And whenever we renew leases, we will review the state of the store and go back and invest in it to make sure that it is up to scratch and great representative. So we're a great representative of the brand, and so we are very. You saw that number spent on stores is increasing. We are acutely conscious that we, just because our stores are unprofitable, we can't allow them to degrade.
That said, if a lease is coming up for review in two years' time, we're not going to go and spend, you know, spend GBP 300,000 on it, however much it needs it, because it's, you know, it doesn't strengthen your negotiating position. What we won't do, and I think this is a real hiding to nothing, is like: "Okay, retail's not doing very well, so let's throw a whole load of money at it and refit all the stores in the hope that that will magically make things better." Because I'd say that if you look back over the, you know, long history of people doing that, it very rarely works.
Morning. Greg Lawless. Just could I ask you about the consumer outlook? What do you think the consumer will be like this Christmas? And then just in terms of gifting-
Festive
... gifting in particular, will there be fewer but higher quality presents under the Christmas tree?
Oh, yeah. No, so, we're so in answer to the sort of the first question, I don't know. You know, our best guess as to the health of the consumer is our sales forecast, and I think I wouldn't want to go beyond that. Other than if you look at our finance business, there is nothing in the finance business that would suggest the consumer isn't healthy. But default rates are lower than they've ever been, and payment days are lower than last year. People are paying down their debt faster and defaulting less. So we can't see anything to worry about in the consumer base at the moment. In terms of mix, we still think that the exciting parts of our ranges are going to be the mid and upper price points.
That's as much to do with fashion and trends as it is to do with consumer expenditure. It doesn't mean customers are going to be spending more money. It just means we think what they do spend on will be fewer, higher quality things, and that's a trend we've seen for 18 months, and we think will continue.
I had a couple of questions. The first was just on the credit sales. So the way we sort of tend to look at it, and we will forecast that based on the growth in online U.K business, including Label sales. And I'm just wondering if you think that's the right way to think about it, or whether in the future, you could consider a credit option overseas? I know in the past you've talked about having potentially a white Label credit offering that you could make available to, for partners in the U.K, for instance. And the second question was just on the underlying profit margin. So I understand the point on the overseas profit margin, you know, the pricing structure going up to invest in marketing. But the underlying profit margin went up, you know, 10 basis points, both in online and in retail.
Just wondered if there are any certain countries, for instance, offering more competitive pricing in order to gain share, or if it's just more broad-based in terms of interior pricing?
Yeah, so it's a really good question. So, in terms of the second question, are there countries where we think by being more competitive, we could increase sales? And the answer in the vast majority of cases is no. And the reason for that is that if you think about, you know, pricing isn't a binary thing. It's about marginal pricing. So if you've got, you know, 10 million customers who would buy it at GBP 5, if it goes to GBP 6, it's not like it goes to nothing. It goes to sort of 8, GBP 7, it'll be 5. And the problem we've got in the vast majority of our overseas markets is not the numbers of customers who see the product, who can afford it, it's the numbers of customers who see it in the first place.
Because if of those 10 million customers, only 500,000 are seeing it, and you pay to double that, it will be better than lowering prices. So that's the view we've taken in almost all countries. There is one country where we've gone the other way, and we've reduced prices by 10%, and in that country, it has worked. But in the vast majority of cases, it's worked the other way around, where the investing in your customer's ability to see the product in the first place has been more productive than investing in making it great value when they do see it. Does that make-
Yeah.
That makes sense, and then your credit model... Look, we can't even do our own model, so I'm not going to try and do yours. Very difficult to model it, so I'm not going to help you there, but in terms of credit offers overseas, we would, you know, the reality is, credit is one of these businesses that is blessed and cursed by an enormous amount of regulation. So the incumbency, it's a blessing, and to the new entrants, it's a curse, and so, you know, there's no way that we're going to go into credit offer, our own finance credit offer overseas. That's not to say that we wouldn't and don't offer other payment methods like Klarna, and if Klarna have credit, we will offer that in some places. But it'll be other people's credit offers rather than our own. Okay.
Morning. Sreedhar Mahamkali from UBS. Couple of questions then, please. Firstly, I think something you've said, there might even be some space growth in retail next year. How are you thinking about the medium-term view on retail? I think this year, clearly, you're talking to more or less flat. Is this your view now that retail is probably looking like more stable to maybe slight growth in the medium term? Is that how you think about it? That's the first one. Second one, overseas, clearly, there's lots of margin drivers. You're talking about very deeply under-penetrated markets. On a kind of three, four-year view, it's clearly, you know, going to grow faster, but the business gets bigger.
As the business gets bigger, should it be more profitable, or you kind of look at it and go, "Lots of opportunity, we keep going, we keep raising marketing"? How should the balance be?
Yes, I mean, the answer is we don't know. We're going to feel our way. You know, I think, I think the one thing you can say about our overseas business is it has very few fixed overheads.
Mm.
And therefore, you shouldn't expect volume to deliver any sort of economies of scale. The only economy of scale might be if more people come back of their own accord, and we have to spend less on marketing. I'm not anticipating that for a long time. So I definitely and I think where our profitability overseas to move forward of its, you know, as a result of volume, we would reinvest it either in more marketing or in better prices. I don't think we need to push the margin. I think the margin that we're making overseas is commensurate with the level of risk and investment we're putting into that business, so I'm not looking to push the overall margins of the business at this point in time.
And then a medium-term view for retail, we don't know. Again, we don't know. And the good thing is that we don't have to guess because, you know, we don't have to decide what's going to happen to the whole portfolio. We only have to decide on a week-by-week basis, what is going to happen in Thurrock or Southend or Aberdeen, where we're looking at a new store. That's the only time we need to take a medium or long-term view, and there we tend to be taking a five-year view. And what we normally do when we appraise a new store, is that we will assess it on the basis of negative like-for-likes, as a bit of a fail-safe.
So we'll say, "Look, will this store make the returns it needs to, two-year payback, 15% net margin before central costs on a five-year view, assuming that like-for-likes say -5%?" That's how. That's the only time we really think about what's going to happen in the wider market because it's the only time it actually makes a difference. Okay. And I think on that, bombshell, we're finished. Great. Thank you very much, everyone.