I have two questions. Sorry, Warwick.
Thanks. Morning, Simon. Warwick Okines from BNP Paribas . Two questions, please. Is the opportunity to develop the Wholly Owned Brands a bigger opportunity than signing more Total Platform customers? And should we sort of think of that as a bigger opportunity?
I think as it stands today, yes. I think the thing about Total Platform is that it's sort of the difference between macro fishing and whale fishing. Total Platform, where we make a difference, where we make a big deal, and that's going to be pretty binary. So in the year that we do do a big deal, as and when we do them, that will make a much bigger difference. I think Wholly Owned Brands is a much more reliable and steady source of growth than Total Platform, which is likely to be sporadic.
Thank you. And secondly, you talked about still an opportunity to improve the delivery service out of South Elmsall. Is that a sales opportunity for 2026, or is it just about cost efficiency?
I think there is a cost element to it. Obviously, if you're delivering the fifth item separately, you've got the extra parcels. There is definitely a cost element to it. I don't think it's an immediate sales opportunity in the way that putting a brilliant range or not brilliant range is an opportunity in threat. I think it is about the slow and steady establishment of brilliant service, and I think that that takes years to deliver. So yes, it is a sales opportunity, but I don't think you should be building into your wonderful models X% for warehouse improvements in terms of sales opportunities, because I think it's much longer term. Great service is a longer term opportunity to acquire and retain customers rather than immediate fill-up to sales.
Thanks, Simon.
Hey, Adam Cochrane from Deutsche Bank. There's been a lot of chat about business rates being changed in the U.K., particularly with regards to larger stores. Would this be of impact, do you think, to any of your larger stores, and would it change any way you look at them?
Yeah. We very rarely have the opportunity to take larger stores. So yeah, the answer is yes, it would, but it's unlikely to be the defining characteristic on the appraisal. Just sort of by way of background, we estimate that the net effect of the changes on rates overall will be GBP 5 million more cost in warehousing, GBP 3 million less cost in retail. I think I'm right in saying that.
Yeah, GBP 2 million. So it's a small number, depending on what Rachel Reeves does in the budget. But I think if you take the mid case, we think it's only about GBP 2 million.
That's great. Thanks. And then a few years ago, we talked about increasing the number of brands and items online as being a real competitive advantage. You're now talking about sometimes removing or at least trying to change high volume items. What's the overall outlook in terms of number of lines, brands, et cetera, that you're offering online compared to where you would like to be or where you were?
There's that whole like-to-be thing, and that suggests that the business is somehow the result of my will, which mercifully for you, it isn't. We will add lines as and when we can see they're incremental and profitable, take them off when we think they're duplicative and unprofitable. I think what is likely to happen is that you will see an increase in the amount of wholly owned brands and licenses on the website. I think in the short term, we will continue with focusing on getting the best of our bigger brands rather than new brands on the website. There will be some new brands, but those new brands will be limited to the areas we were talking about of performance sportswear and sort of luxury brands on the Seasons website.
So I wouldn't want to make a prediction as to what the balance of those effects are going to be. Okay, next question. Yeah.
Good morning, William Woods from Bernstein. The first one's just on the brand mix that you've been experiencing. So you've got positive momentum with higher ASPs versus like-for-like pricing. Excluding Seasons, how do you see that brand elevation or the increase in ASPs going forward? And do you think you've highlighted the plateau risk in number of brands? Do you think there's also a risk in terms of average pricing that you're putting forward to your customers?
Again, I think, first of all, be very careful of the word momentum. My experience is very little momentum in retail. And I don't think we are getting momentum on average selling prices going up. It suggests something that we're pushing and going faster and faster as we push it harder and harder. This is very much a pull. This is what the customer is choosing to buy. And the way that we build our ranges isn't by deciding what we want our customers to buy. Our job is to guess what they will themselves want. We don't make them want it. So who knows which way that trend is going to go? All I can say at the moment is that it appears to me that the most exciting products we're looking at are the slightly more expensive ones to make.
So I think I can't see any change in that trend, but it will change at some point, these things wax and wane.
Great. And then the second question's just on international. I think in the report you mentioned the opportunity to expand breadth and availability in international to support that growth. Can you give some idea of what that looks like and what you're doing at the moment? Is it categories, SKU count, size availability, color availability, things like that? Thanks.
In terms of availability, by far the most important thing we're doing actually is in our aggregation business in Europe with the transition to ZEOS, and this is where we're moving the warehousing of our own direct websites into Zalando, which means that there's a shared stock pool, and what that means is that both our websites and their websites will have access to a bigger pool of stock, and we think that will increase availability for the aggregator. It'll be less of a market effect for Next because we always drew on our U.K. warehouse where the European hub didn't have the stock available, so actually, the way the customer will experience it on our website will be about more things arriving sooner in one parcel than coming in two parcels.
Thank you. Morning, Richard Chamberlain, RBC. Couple from me, please. First one is on sourcing. Simon, I've wondered what's the current percentage of sourcing done in U.S. dollars and how are you thinking about potential to reinvest those gains into next year? Are you thinking that's a good opportunity to, for instance, improve quality style and so on of the offer next year?
The second one?
Second one is on international Rest of World. You gave Japan as an example, talking about kidswear and so on, but is it still the case that Rest of World is seeing a sort of broadening out more into women's and men's now in terms of what's actually driving the growth of that segment? Thank you.
Yeah, okay. Good question. So in terms of broadening, we're seeing that across the board, not just in Rest of World. We're seeing the parts of our range we sold the least are growing the fastest. So in territories where we were selling mainly children's wear, we're seeing men's and women's growing fastest. And that trend continues not just in the rest of the world, but in all the other territories, pretty much all the territories in which we're selling. In terms of sourcing and dollar gain, I think so most of the stock we buy is dollar denominated. I'm going to guess around 80%. What would your?
Bit higher.
Bit higher. Lower. Anyone else? Bids from the back. So yeah, it's a lot. I think you've got to be very careful about assuming that an improvement in the dollar rate translates straight into an improvement in the factory gate price because a lot of the costs are in local currency. And so if the dollar weakens as a result, if it's dollar weakness, then actually you don't get very many gains. If it's pound strength, then that's the only time you really get that translates through into factory gate prices. But in answer to your broad question, our aim is that where we get increases in costs or decreases in costs in the input cost of goods, we pass that straight through to the consumer. We did increase our bought-in gross margin very slightly this year because of the NIC increase.
But generally, our view is pass it through to the consumer. And here, I wouldn't want you to think, again, that it's clever people in the boardroom going, "Oh, we'll put that into quality or we'll put that into price or we'll go higher and lower end," because that's not our decision. The person who will decide will be the shoe buyer or the blouse buyer, and they will decide, "Do I slightly upgrade the fabric? Do I put a better print in? Do I lower my prices?" It is all done at buyer level rather than boardroom level. So I wouldn't want to give you a steer as to how any gains we get are invested. My guess is that if we see at the moment what those gains are being invested in is better quality, better designs, better prints.
Whether that's the same next year or will depend on hundreds of people who work at the business. Yeah.
Thank you. Sridhar Mahamkali from UBS. A couple of questions. First, I think you've pointed to international marketing returns being extremely strong. If they're as strong as they are, why wouldn't it grow another 50% in the second half? Simon, why only 25%? And the second one, you've talked about potentially, or if you mind it to potentially change the U.K. sort of return on stores, payback periods, or heading in that direction at least anyway. What does that mean for ERR for buybacks, the both capital allocation decisions?
It doesn't mean anything for ERR on buybacks, obviously. At eight%, changing the stores are only the retail business is only 20% of our business, and the retail new space might account for one% if we're lucky of retail sales. For us to change our ERR as a result of that wouldn't make sense, and I think the important thing is that every investment decision we make, we're balancing two things: risk on the one hand versus return on the other, and I think the point I was making about the stores is if we are able to de-risk the stores in one way or another, either through higher hurdle on profitability or more flexible rents, then we will consider moving the payback out, but it won't affect our ERR, and in terms of marketing, it might. I'm not going to rule out it growing.
I think it's very unlikely to grow by 57% because I think a lot of the gains we got were about these website improvements where we've already annualized some of them versus last year. So I think it's very unlikely to be as high as 57%. Whether it's more than 25% will depend entirely on how we trade.
Hi, it's Georgina Johanan from JP Morgan. Just two really quick ones, please. Just first of all, in terms of the pressures obviously being faced by Marks & Spencer in the first half, just wondering if there was any learnings from that for you really in terms of the customers that you were acquiring. Could you sort of leverage that in some way going forward? And then second one, please, was just obviously you have a sort of lot of data presumably on customers by income demographic given the direct book. And just wondering if you could talk a little bit about how the different income demographics were performing in the half across your sales base, please. Thank you.
Yeah, the answer is we don't have income data about our customers because we have relatively light credit score. So we don't. There are a small number who are on the edge who we do affordability checks on, but the vast majority, we don't know what our customers are earning. So I wouldn't want to give you any data on that. And in terms of lessons from, we don't know which customers have. Customers when they come to us don't say, "Oh, I'm coming to you because I can't go on to somebody else's website." So in all honesty, there aren't any lessons that we have learned that I would be willing to share. And in truth, I don't think there are any that I know of.
Andrew Hollingworth from Holland Advisors. Can I just ask a couple of clarification questions from questions that have come up before? So just on your follow the money.
You didn't answer the questions properly.
Fair enough.
No, no, I'll take the criticism.
Let's see. On your follow the money commentary this morning, which I think is sort of obviously a very sensible way to go about things, the gentleman in front of me asked about the sort of wholly owned brands situation. Could you just talk about whether or not the success of the business overseas gives you more confidence in terms of wanting to commit capital to buy more brands, to innovate more brands internally and so on? I'm not expecting you to tell me what you're going to buy. Just yes is a perfectly acceptable answer or no because is another answer. The answer is no.
I don't think so. I mean, in reality, when you're looking at investing in a new brand or a new team or buying something, we're mainly looking at what the business currently does rather than what we think we can do with it because those are the returns that we look at most carefully. In terms of the upside, are we thinking overseas, U.K.? We're just thinking total online. The more we take online, the more the upside is there. So indirectly, yes. But we're not thinking, "Oh, this would be a brilliant brand to sell in Japan or Saudi Arabia, so let's go buy it," because we would make a lot of mistakes that way.
Okay, fair enough. And then on the international marketing question, is there a success-oriented? Is there any reason why in three years' time from now, having done everything you've done overseas, that we couldn't be spending multiples of what we're spending today? And it feels like the world's a big place. It feels like the people you use with your marketing spend would be delighted for you to spend three times as much. Could you just tell us why that might not happen? Is there a limitation that I can't foresee?
I think it's all down to execution. We will only be able to spend more money on marketing if we continue to improve our websites. We continue to see depending on a lot will depend on convergence of global fashions, whether that continues at the pace we think it's happening at the moment. So it comes down to internal factors, product ranges, execution and service, and external factors and the speed at which global fashion trends converge. And some of it's also third parties' willingness to trade with us.
But if you keep getting the returns you're getting, you'd be happy to spend significantly more in the way that you have done in the first half.
We're not capital constrained. The reality is we're talking about returning GBP 350 million this year in one way or another that we can't another GBP 350 million over and above the GBP 118 million we've already spent by way of return. So we are not capital constrained. As a business, if something makes money, we will just carry on investing in it.
Thank you very much.
Yeah. Hi, Geoff Lowery, Rothschild & Co Redburn. Could you help us understand a little bit more about the behavior of your customers in the UK who have a credit account? I'm not really talking about this half year, more this broad sweep of you continue to add customers with an account, but they seem to spend more with you, but they're less reliant on your provision of credit to them than they were. So what sort of triangulates all of this for us? And is that growth in credit customers a function of converting ones who are cash, or is there something going on beneath the surface that we can't see in terms of the overall profile? Thank you.
That's a good question. I think, first of all, the vast majority of credit customers are not first-time customers. It is a question of converting cash customers into credit customers. In terms of behavior, what we're seeing is in terms of delinquency and default rates, I think a lot of that is about how more and more credit is being joined up. If you default on your GBP 100 debt to Next, you might not be able to get a mortgage. I think that is what's driving a sort of consistent reduction in default rates. I think also a lot of customers are switching from cash. I think more of them, and I haven't got numbers for this, but I think more of them are just using it as a try-and-buy facility rather than a proper credit facility.
You've got to press the button, apparently.
Morning, Vandita Sood from Citi. Just one. When we toured your warehouse, you talked about potentially offering the spare capacity to other brands, Zalando's ZEOS. Obviously, now you'll have maybe more capacity from shifting your stock to Zalando, but then you've also talked about improving the performance and reliability of the brand. So is that still an opportunity?
Yes, I think so. It will depend on and we are talking to a number of people about that. So that is an ongoing discussion. It's not a huge margin business, so I don't think it's not so it won't generate as much pounds profit as Total Platform, but it is a profitable business, and we're still talking to a number of people about offering that service.
Hi, David Hughes at Shore Capital. A couple of questions from me. First of all, on pricing and the broadened margin, obviously, you've increased that a little bit to offset some of the higher costs. Did you see any kind of customer reaction to this? And if there is a further increased cost, either through the Employment Rights Bill or through another minimum wage increase next year, do you think there's more that you can do there to offset that cost? And then secondly, just on international, alongside the improvements you're making in the 83 countries, do you have any significant plans to expand that to cover kind of even more of the globe?
Yeah, so in terms of more of the globe, not really. The big countries that we're not in, either Russia, either there are political reasons for not trading there or the market's just not ready. So I'm not expecting the 83 number to change dramatically. In terms of pricing, it's very difficult to see a response to a 1% increase in price. So the honest answer is we don't know what the response to that was. I don't think there was any, if you ask my gut feeling. I don't think there was any response because the 1% is still significantly less than wages are going up by. So actually, in sort of share of wallet terms, that 1% increase is a gain for customers whose wages on the whole are going up by 3%, which is slightly more than that.
I don't think it's been a problem. And then, in terms of our ability to pass on, I'm often asked about what's your ability to pass on the price. And the answer is, look, we print the tickets. We print the price tickets. So our ability, we've always got the ability to do that. And our view is that you have to do it. You have to maintain the profitability of the business because if you don't, when you look at the what would I have to gain by way of sales in order to sacrifice to make back the margin I'm sacrificing? The answer always comes back, don't do it. And so our view is that where we get better prices from our manufacturers, we pass those through. And we've done that consistently for the last 20 years.
and if in real terms, the price of clothing generally, not just at Next, has come down. You're getting better quality for less money. But where your costs go up, you have to cover them, regardless of whether that has an adverse impact on your sales or not, because it's more important to maintain the profitability of the business for all the reasons that we discussed than it is to maintain your top line.
Hi, Anubhav Malhotra from Panmure Liberum. A couple of questions from me, please. Firstly, I would like to understand how's the mix of the third-party brands you sell between wholesale and commission developing, and are you still making a concerted effort to move more into commission? And maybe the reverse of that as well. When Next sells on international aggregator platforms, are you doing that mostly on a commission basis or on a wholesale basis? And my second question is about.
That was two questions. We're into three now.
All right, sorry. The third one then is, when you think about developing products and you talked about developing what the customer actually wants, and then I'm looking at the lead times that you mentioned and those increasing now, you are having 26 weeks of cover almost. How do you balance those two requirements? Because the fashion, I mean, you don't want to probably get into fast fashion, but the fashion needs constantly evolve very, very quickly. Are you looking at more near-term sourcing?
Yeah, I think it's about so in terms of the last point, which is a really important one. It's like and by the way, the 26 weeks of cover doesn't necessarily mean 26 weeks lead time. There's a lot of continuity product will have much longer weeks cover. There are products we can react to faster. And we are developing new sources of supply closer to home, which are giving us much faster lead times. We're growing our presence in Morocco at the moment. So I wouldn't want you to think that that increase in that ordering the stock early means that we're not pushing to develop product faster. But our universal experience is that it's not the time taken to make the garment that determines whether or not you capture the trends.
It's the speed at which you go from seeing the trend to executing it with authority and at high and good quality. And that's where we focus. That is where we're focusing all of our time. And the whole thing about developing fabrics earlier, because there are fabric trends that emerge before garment trends, that is critical to that process. In terms of aggregator, pretty much all of the business we do with aggregators is on commission. And then in terms of wholesale versus commission, we're much more agnostic about that than we used to be. So we're not. There was a point at which we were encouraging wholesale to move to commission. We're not really doing that anymore. We'll go with whichever way the brand goes. And in terms of growth, we're not seeing significant difference in growth between the two.
If anything, the improved focus we've got on buying the right quantities of brands and backing newness obviously benefits wholesale more than it does commission. So the big push has benefited wholesale more than commission. Pleasure. And on that exciting note, we'll finish. Thank you very much, everyone. Have a good day.