Good morning and welcome to the NEXT plc half-year presentation. It is great to see all portions of our business moving forward in a positive way. Geographically, the business in the U.K., both Retail and Online, and our International business are all moving forward in a meaningful way here. If you look at the data from another viewpoint, looking at our brands, our NEXT brand, wholly-owned brands, and third-party brands are also very positive. While we're very pleased about our broad-based growth, we maintain a balanced and cautious outlook for the future. Principally due to the external situation, both here in the U.K. and around the world. In spite of what the external world may hold for us, we believe that our strong management team, balance sheet, and financial position leave us very well positioned to withstand any external events.
Before I turn over to Simon, I would like to publicly recognize the retirement of a very important long-serving and experienced executive. Her name is Seonna Anderson. In her final position at NEXT, she was both corporate secretary and corporate controller. Seonna always seemed to wear at least two hats at NEXT. She was a great asset to the board and a great asset to the company. And I think she really embodied the culture of NEXT: very hardworking, very smart, willing to take the lead when necessary, but also worked very well in a team to really meet our objectives. So, Seonna, many thanks. And I'm sure any board where you're in NED in the future will be very glad to have you. Simon?
Thank you very much, Seonna. I didn't realize you were doubling up as a recruitment consultant as well. O kay. Excellent. Yes, thank you, Seonna. So, standing back from the numbers, really good first half. And I think the important thing to stress about these numbers is that there is news that is genuinely very good news, and there's news that's not quite as good as it looks. And the news that's very good news is the overseas sales. There doesn't appear to us that there are any sort of external tailwinds that are helping that business. But in the U.K., we think the first half was definitely boosted, mainly by the weather. This year was a particularly good summer. Last year was particularly poor.
Competitive disruption definitely helped us towards the back end of that half, which is why we're not as optimistic for the second half as we have been or as our performance in the first half would indicate. Moving on to those numbers, total sales up 10.3%. Full-price sales are just under 11%. Breaking that down, in terms of UK, UK up 7.6%. Online still ahead of Retail, but perhaps the most exciting or most surprising number here is the UK Retail number. That is driven. 1% of that comes from new space. The underlying strength we think is down to the weather, where weather seems to have a disproportionate effect on Retail, particularly when you get sudden changes. People want the product immediately. Overseas up 28%, which was an unexpected but very good performance. Profit before tax up just under 14%.
Tax rates pretty much in line with last year and as we expected to be for the full year. And then in terms of earnings per share, earnings per share up 16.8%, boosted by the share buybacks, mainly by the share buybacks we did at the end of last year. In terms of the dividend, 16% increase in the interim dividend. We'd expect the full-year dividend to increase broadly in line with whatever we deliver in terms of EPS, in terms of the total dividend for the year. In terms of cash flow, and just to remind you all, we talk about profit and loss and sales. When we're talking about that for the group, we report the percentage of the businesses that we own, of the subsidiaries that we own. We report that we own 70% of the business. We'll report 70% of their sales, 70% of their profit.
In the cash flow and balance sheet, for reasons I don't quite understand, it's impossible to disaggregate it according to our finance department, so we'll show this on a fully consolidated basis. Cash flow from profit, GBP 62 million . In terms of capital expenditure, up marginally on last year and a half, just to reiterate where we are on CapEx, GBP 179 million , which is pretty much what we expected to spend at the beginning of the year. In terms of where the growth is coming from, it's all coming from the increase in additional space. It's not maintenance CapEx. Maintenance CapEx in the stores ran at GBP 17 million, will run at about GBP 17 million this year compared to GBP 20 million last year, and that's the sort of number that we would expect in terms of maintenance CapEx for the foreseeable future for the next few years.
In terms of the space expansion, we mentioned at the beginning of the year, Thurrock is a bit of a one-off. It's the sort of first of a kind, so we spent more on it than we would spend normally. It's GBP 19 million of that GBP 54 million . And the only news here really is that having opened it, it's hitting its targets. But I wouldn't want you to look at the payback on this store and think that's what NEXT's targets are going forward. It is very much a one-off. In terms of the stores that we opened that weren't Thurrock, they missed their target so far. They've missed their target by around 6%, 18% in their branch contribution. So they've beaten the internal hurdle that we set of 15% profitability, but they missed the payback of 24 months, or we expect them to miss the payback of 24 months.
I think there is an important point to make here, and that is that it's going to be much harder to open retail space in today's environment than it was 10 years ago. It's just worth spending a little bit of time explaining that. If you look at what our stores were taking on average per square foot 10 years ago, being around GBP 300 per sq ft, today, on a like-for-like basis, a store that was taking GBP 300 per sq ft 10 years ago today would be taking about 30% less. Now, as it transpires, that's not as big a problem as it sounds because rents have come down on a like-for-like basis by pretty much the same amount. So we've still got a profitable store portfolio. The issue is the cash generated per square foot versus the cost of fitting it out.
At let's say 25% cash contribution, that's adding back depreciation of around 25%. We were generating GBP 75 a square foot, but today that would generate GBP 53 a square foot. If you look at the payback, very simple basis, it's deteriorated, not just because the cash per square foot's gone down, but because the cost per square foot of fitting out shops has gone up significantly, 32% in that interim period. What would have been a 22-month payback is today 42-month payback on a like-for-like basis. Now, obviously, actually our average pounds per square foot in the portfolio hasn't dropped by nearly as much as the like-for-likes. That's because generally we've opened smaller shops, losing a little bit of potential in locations, but in order to boost the pounds per square foot to attempt to pay for the shop fit-out. Nonetheless, we haven't hit the 24-month payback.
The question that we are asking ourselves that we haven't completely answered yet is looking at the portfolio that we've opened, 18% net branch contribution, 38% internal rate of return, payback, and that's based on the assumption that the stores decline by 2% like-for-like each year after opening. The question is, would we today close those stores because they were performing like that? And the answer is no. And so what we need to do, if we are to continue to open space, and there is a big if there, we're going to have to look at, we won't be able to do it at 24-month payback, I don't think.
And I think the answer is to come up with different hurdles and to reduce the risk of shops by raising the profitability hurdle, entering where we can into turnover rent arrangements or total occupancy cost arrangements to de-risk shops. And I think in those circumstances, and only in those circumstances, we can afford to take a slightly longer payback. We're going to be thinking about we haven't come to a sort of definitive set of hurdles, but I wanted to give you a sense of, as we move the goalposts, the direction in which we're moving the goalposts, if and when it happens. I think one of the important things that will feed into our consideration is what happens to wage costs and the outlook for our employment equal pay case.
Because if we think wages are going to continue to go up dramatically as a percentage of sales, then that will affect this decision also, and so that's new stores. In terms of working capital, GBP 18 million less. This is mainly about the timing of payments for staff incentives. Actually, it's all about the payment we made last year in respect of the previous year's performance, which was a very good performance. We pay the staff bonus or the employee bonus in the financial year after it's been earned, which is why you sort of get this tail lag, so that's given us cash boost. Stocks up GBP 25 million, and we'll be talking more about that later, so total surplus cash up GBP 87 million on last year. Buybacks up GBP 43 million. This isn't because we've consciously slowed down our buyback program.
It's because for a lot of the last six months, we've been locked out of the market. Jonathan got annoyed with me when I said locked out of the market in the rehearsal because it made us sound like somehow we weren't allowed to trade. We were, but we were above our internal hurdle for price. It looks like you've very helpfully helped us with that today, but our intention will be to carry on buying back shares as and when we can. Net cash flow up GBP 141 million. Moving on to the balance sheet, investments appear to have come down by GBP 17 million. This is all about the amortization of brands on the balance sheet. Stock, I need to talk a little bit about stock because our stock has gone up more than you would expect, and in fact, more than we expected. And I need to explain that.
Actually, in the NEXT brand, it's gone up by 16%. Just to explain that, two years ago, we were on around 20 weeks cover of stock. That's the stock in the business and the stock on the water. Last year, we increased our cover to account for the additional time the stock was going to be on the water, which is about two and a bit weeks. And because we were experiencing disruption in Bangladesh, so we moved to 23 weeks. We thought that was it. This year, we're on 26 weeks. And the reason for that is because last year, a huge amount of our stock still turned up late, mainly as a result of factory disruption, but also disruption in the world's logistics, the freight market. And so this year, our team has embraced the belt and braces decision to buy, and they ordered early.
And I would stress this is ordering early rather than ordering more stock, but we clearly overdid it. In addition, not only that, but because capacity has come out of the global supply network, it feels like that to us, factories have actually been delivering early. They've got a window of two weeks. They can deliver early. And actually, freight times have taken slightly less than we have put into our calculations. So both of those are good news in a way, but it means we've got much more stock in the business. In terms of end-of-season sale and the total amount of stock we bought, we're not anticipating that our stock for the end of season will be any higher than the forecast we got for second half growth.
We think end-of-season stock, combined with any mid-season stock, the total stock marked down in the year, we think will still be at or just below 4%. I think it is also worth mentioning there is a slight upside risk here on the sales numbers by having so much stock. This time last year, as we ran into Christmas, those delays were definitely impacting some of the sales on some of the products that we were selling. So there's a potential upside from having all that stock in the business. In terms of customer receivables, customer receivables, this is the amount our customers owe us on their mail order accounts. Sorry, mail order. I'm going back in time there. On their online accounts. Actually, credit sales to customers are up 5.2%, but we're continuing to see customers paying down their balances slightly faster.
We think that's a very encouraging sign. That means our consumers, at any rate, are not feeling squeezed. In terms of default rates, they are the lowest levels that we've ever seen them at 2.3%, and we're still conservatively covered in terms of provisions at 7.6%. Although we've released GBP 10 million of provisions this year, and we did the same thing last year in the first half, we are still, I would argue, adequately, but not over-provided for bad debt. I said the over-provided stuff just for the benefit of our auditors that are in the room, who we have regular interesting conversations about. Other debtors, GBP 56 million. That's two things going on. First of all, the growth in our aggregation business.
Our aggregation business is largely on commission, which means that the aggregator, speaking of the likes of Zalando, About You, take the sales, and a month later, give us those sales less their commission. So there's a month's lag, and that increases cash out by GBP 20 million. And about a year ago, or just under a year ago, we stopped doing the interest-free credit in our stores on furniture with Barclays and took it in-house and financed ourselves. And that's what's sucking out that other GBP 19 million of cash. Credit is up GBP 152 million. Big number here is stock, as I've explained. We've ordered more stock, so we owe more to our suppliers. The other two issues are payroll accruals and taxes. And both of those are fascinating subjects upon which I could spend a lot of time speaking about.
I don't want to deprive Jonathan of any of the interesting questions you may give him afterwards. So please do speak to Jonathan about those in detail afterwards. They're basically technical. Dividends up 9% in line with last year's earnings per share. Buybacks down 100. Buyback commitments. This is not buybacks. This is the last year, we put in place a six-month buyback program. We haven't put in that program this year, partly because our share price was above our target. We will continue to do closed-period buybacks, but you shouldn't necessarily expect us to do a long six-month program of committed buybacks going forward. So net debt down GBP 180 million. Net assets up GBP 340 million. Very strong balance sheet and very strongly financed. This was our cash and facilities at the beginning of the year. Our financing at the beginning of the year at GBP 1.2 billion.
We repaid the 2025 GBP 250 million bond. We also bought back GBP 136 million worth of the GBP 250 million 2026 bond. That was funded by the issue of a GBP 300 million bond. You'll remember that we have been keeping our powder dry for a number of years now, accumulating cash in case we weren't able to go into the market or we felt the market wasn't at a price that we'd be prepared to pay. The market actually was fine, so we've refinanced those bonds through the market, and we pushed our RCF up by GBP 100 million, so we're still very comfortably financed as a business. In terms of cash flow in the year and debt, we started at GBP 660 million, generating around GBP 870 million of cash, GBP 179 million of CapEx, GBP 285 million of ordinary dividends.
Were we to land at exactly the same number at the end of the year, we'd be at GBP 400 million. We'd return around GBP 400 million of cash to shareholders. We think that GBP 660 million is beginning to look a little bit low. We've always said that the company should maintain or intends to maintain investment grade. We're way off the leverage that will put us close to the edges of investment grade. The company's been at more than 1.2x leverage. We started the year at 0.63x. We think it would be wrong for us to continue to lower the leverage. Maintaining leverage at 0.63x means that year-end debt we're now forecasting to read about GBP 720 million with GBP 470 million of cash to be returned to shareholders or invested in the meantime. We've only spent GBP 119 million on buybacks so far.
That leaves GBP 350 million odd to either spend on buybacks or special dividends or investments. Although I should say, whilst we are talking to a number of potential investments at the moment, there are none of any significant size that will put a dent in that number. So basically, most of it will either be share buybacks or special dividends. Moving on to Retail. Retail sales up 3.7%. Full-price sales up 5.4%. The big drop in markdown sales in store is all about the fact that we kept far more of our stock online in the Online warehouses for the Online sales, particularly overseas, than we put into Retail. We felt we could get a better return there, and it was one of the big advantages of having so much more capacity that we were able to retain more sales stock for the Online sale.
So, underlying full-price sales after deducting use space is around 4.2%. Profit in stores down 1.4%. Margins off by 0.5%. In my normal way, I'll be going through in painful detail all the margin movements. But spoiler, this is all about national insurance. Basically, all the erosion of margin is about national insurance, NIC, and minimum wages pushing up the cost of labor in stores. Bought-in margin nudged up a little bit with underlying margin up 0.2%. Remember, this is where we said we would push our prices up a little bit to help pay for the cost of NIC. Markdown, clearance rates. Even though we had less stock in the stores, our clearance rates were a little lower. Payroll was a big cost. And here, actually, without the productivity improvements we were able to make, that number would have been 0.7%. Store occupancy costs. Positive movement here.
Increase in like-for-like sales pushing wage costs down as a percentage of sales. New space. Particular stores actually opened in the second half of last year, pushing up cost of space by the same point, offsetting that. Lower energy costs and no business rates refund this year, whereas we did have one last year. Central costs. Not a lot of movement here. A little bit more technology cost and Retail's share of the marketing campaign that we did into March, April, the sort of newspaper campaign we did then. So total movement - 0.5% in Retail. Looking to the full year, assuming that our like-for-like sales are down 2% in the second half, we'd expect total sales to be down 0.6%.
What that means is that we would expect margins for the full year to be at 9.8%, down 1.2% on the previous year, of which 1.1% comes from NIC and wages, and if you're wondering why the erosion is greater in the second half than the first half from the NIC and wages bill, it's because it didn't come until April. Moving on to Online. Just to remind you that Online business now, we split in terms of our analysis. We split between U.K. and overseas because the economics are quite different in the two businesses. So starting with our Online business in the U.K., total sales up 11%. That was boosted by the additional stock that we had for sale that we kept back for sale. So underlying full-price sales up 9.2%.
In terms of where that's come from, the business now is just under half the business is non-NEXT brands. In terms of where we get into growth, NEXT brands still growing online in the U.K., but you can see third-party brands and wholly-owned brands and licenses delivering around 13%-14% growth between them. That's important. One thing I should say is that wholly-owned brands and licenses are a bit of a mouthful, so I will use the unfortunate acronym WOBL as we go through here. But you can smile at that now. Please don't smile at it as I'm going through because it's just embarrassing. Profit. Really good number on profit in the U.K., up 17.7%. Margins are improved. These numbers, I'm showing you these numbers, but they're not quite right because we've reallocated cost between our non-NEXT branded business and NEXT.
Over the past two or three years, we haven't added some of the technology and marketing costs. We've attributed them all to the NEXT brand. But actually, when you look at the marketing, although most of it is focused on the NEXT brand, the reality is it does benefit the non-NEXT business too. So we were under-allocating marketing and tech costs to the non-NEXT branded business. If we just sort of walk both of those numbers forward, and I've swapped the columns and rows here, so just familiarize yourself. The starting point is at the top, and that is without the adjustment in central overheads. If I account for the adjustment in central overheads, the underlying NEXT brand profit would have been at GBP 20, million brands at 12.2%.
What you can see is the NEXT brand has moved forward a smidge, and the non-NEXT branded business has moved forward by around just under 2%. That's all about the item-level profitability work we did to make sure that we weren't selling unprofitable third-party brands on the website, and that really came down to mainly commission brands that were putting low-value, high-returning items onto our website, and those items, because they're low-value and we're going out and coming back in large volumes, were eating up all of their profit through operations costs. So we've weeded out those products in one of two ways. We've said to the brands, either you can keep the items on the website, but you have to pay a higher commission for them, or you can take them off, and they've done a combination of both.
In terms of the walk forward on margin, what you can see is bought-in gross margin on brands up 0.7%. That's all about higher commission rates on those unprofitable lines. Markdown broadly in line with last year, and actually a good number considering how much more stock we had on the website, how much more markdown stock we had on the website. Warehouse and distribution, big gain on the non-NEXT branded side of the business. That was all about taking out these low-value, high-volume lines. If full-price sales in the UK Online are up 3.6% in the second half, then we expect margins to move forward for the full year to around 0.8%, with total margins around 21.5% in the U.K. for the full year Online. Moving on to our International business Online. Total sales up 33%.
We were able to put an awful lot more markdown stock onto our international websites, so the actual underlying full-price sales are up only 28%. In terms of where the business is at the moment, around 1/3 of it is coming on third-party aggregators like Zalando, About You, 70% from the NEXT direct websites. In terms of growth, 26% on the NEXT direct websites. Of that 26%, we think around 2/3 of it, 17%, is driven by marketing and 9% natural, word of mouth, etc. On third-party, the 33% is better than the underlying trend. We think new aggregators added 9% of the growth, and the existing aggregators grew broadly in line with our own website at around 24%. In terms of the shape of the business globally, still dominated by Europe and the Middle East. In terms of growth rates, Europe grew the strongest.
I think the most encouraging number, actually, on this page and, in fact, in this section, is the growth that we're getting in the rest of the world, where in many territories where we had no traction at all, we have begun to get good growth, and I'm going to talk a little bit more about that in the sort of focus section at the end. In terms of profit, profit up 36%. Margins moved forward by 0.4x. There is a slight wrinkle here in that last year we understated profits by around 0.7% in the first half. That reversed out in the second half. This was all about over-providing for duty in one of the territories where duty rules changed, and we were overly conservative in that. So actual like-for-like restated margin is broadly flat at around 15%. Bought-in gross margin up 0.4x.
Underlying margin on NEXT goods up 0.2, and lower duty costs contributing 0.2x to margin. That's not because duties have come down. It's because we've become more effective at working out exactly what duty we should be paying and reducing admin costs. In terms of markdown, this isn't really an erosion of profit. This is because we've got so many more markdown sales on the website because we put more stock on. So it's more about pushing the top line up from the 28 to the 33 than it is about pulling the profitability of the full-price sales down. Warehouse and distribution, inflationary costs in wages, broadly offset by operating efficiency, leverage over fixed overheads, and an increase in handling charges. This is where the customer's paying for the delivery of goods. Marketing is the big increasing cost, as you'd expect.
So you can see that more than all of the margin erosion overseas was driven by increasing marketing costs, which we see as a strong positive. And again, I'll talk about that in a little bit more detail later. In terms of second half, we forecast for the second half to be up 19%. You might look at that and go, "That looks overly conservative," given that we grew by 28% in the first half. In the first half, we grew our marketing by 57%. At the moment, we don't think we have the opportunity to increase marketing by much more than 25% in the second half. That is why we're being cautious about that number. And it's still a big number, but relatively cautious. We will see how it goes.
If we are able to achieve better returns on our marketing, I wouldn't want you to think that that budget is fixed. Every few weeks, we review the performance of our marketing. If we do better than expect to get better returns, then we will increase that number. So, margin forecast for the full year, we're expecting to be up around 1% on the basis of those assumptions, just under 15% net margins. Moving on to customers. Group customers across the board. U.K. credit up 4%, just under the 5% increase in credit sales. U.K. cash customers up 12%. We think this number was almost certainly temporarily boosted by the disruption to another retailer during the year. So I wouldn't expect that number to continue for the full year.
International customers up broadly in line with sales, slightly more as you'd expect because the new customers likely to spend less than the existing customers. In terms of sales per customer, a move forward in the U.K., we think driven by the increased product offer we've got on our website. And overseas, a reduction, but potentially by less than you'd expect given the increase in new customers that we've got on the international business. And just to remind you that these numbers exclude aggregators because we don't know how many customers are shopping with us on aggregators. Now, the sharp amongst you, which I'm sure is all of you, will instantly be saying, "Hold on a second. That 10.3 million was significantly less than the 13.7 million he quoted at the year-end.
And how have they managed to lose all the customers?" Just to remind you, we switched at the end of last year to just talk about unique customers that order in the year rather than active because it was the only way of getting meaningful sales per customer numbers. The 10.3 million is the number that's ordered in the half year, not the full year. So we would expect the full-year number to be more than 13.7 million unique customers in the year. Moving on to full-year guidance. Full-year guidance, we're expecting sales to be up 7.5%. That looks conservative. Looks like a six-point swing in the second half if you just compare it to the first half. If you compare it to two years ago, it looks a little bit more realistic at 3.7%.
And remember that this year, we had an exceptional summer, competitive disruption in the first half, which boosted numbers. And we think the U.K. economy will get tougher as we move through the second half. What we're particularly concerned about is employment. So you can see vacancies have continued to drop since 2022, and we can see no change in that trend. And that is beginning to affect payroll and employee numbers. Hasn't yet affected unemployment numbers. Our view is that it will. And what's interesting is that those numbers are reflected in our own numbers, which are much more dramatic. So if we look at the number of vacancies that we have in NEXT relative to two years ago, we've got 35% less vacancies. That's not because we are dramatically or even at all reducing our headcount.
By far, the biggest driver of this is a slowing in staff turnover. And we're seeing that across the board. And we think that is indicative of the absence of job opportunities elsewhere in the economy. If we look at the applications that we're getting, unique applications that we're getting for those vacancies, they're up by 76%. Even more dramatic in head office, actually. And so the applicant-per-vacancy ratio is now at 17 per vacancy. That's up 2.7 on two years ago. So look at that the other way around. If you were to apply for a job at NEXT, your chances of being successful have reduced by over 60%. I'm not saying that you will apply or that you have got good prospects, by the way, but nonetheless, the odds are worse. And we think that is indicative of what's happening in the wider economy.
We think the reasons for that are very simple. They're threefold. First of all, I should say at the entry level, we are seeing by far the most pressure. We think there's a very obvious reason for that. If you look at the cost of National Living Wage gone up 88% over the last 10 years compared to inflation at 38%. And if you look at the cost of part-time workers and factor in the NIC, the cost of a 16-hour part-time employee has gone up just over 100% versus 10 years ago. That has meant inevitably that companies have driven for productivity. NEXT is no exception. We've invested in enormous amounts of mechanization because this hasn't just affected entry-level work. It's also affected the levels immediately above that as well. For example, in warehousing, where we've put a lot of mechanization in.
You've got increasing costs driving mechanization. Layer on top of that, AI making a lot of entry-level desk work much more productive, and impending legislative barriers to employment. We think what you're looking at is a big squeeze on employment. Now, no one knows how that will pan out. Our guess is that it won't pan out with some sort of cliff edge moment of sudden massive unemployment. I don't think that's going to happen. We think it's much more likely that companies will do what, in essence, we have done, which is, as and when vacancies come up through natural turnover, not to replace them. And particularly at the entry level, where you tend to get higher levels of turnover as well.
We think this squeeze is going to be felt by the people coming into the workforce or attempting to move jobs rather than those in the workforce, which goes some way to explaining the stability of our order book. That was a little section just to anyone who was looking at our H2 numbers and going, "Oh, they're way too soft." It's just to add a little bit of our caution to yours. In terms of where we are for the full year, 7.5% sales growth, we think will deliver around GBP 1.1 billion of profit. I'm not going to walk this forward from last year. I'm just going to walk it forward from the estimate that we gave in March to just talk about the differences. So we're at 1,066 estimate in March.
In terms of the change, the lion's share of the change is driven by our increased expectations of sales, mainly in the first half, GBP 34 million. Clearance sales have significantly improved. These are not the sales in the end-of-season sale. These are the sales that we get on the clearance tab of the website. And it's one of the big unseen benefits of having so much more capacity in that we've been able to put away and put up for sale in a much shorter time all the stock that comes out of the end-of-season sale. And so our clearance tab on the website has had a very good half year. And we expect that to continue right to the end of the year, GBP 7 million of profit.
Total Platform partners, we increased our estimates of their profits and Total Platform profit from GBP 78 million to GBP 80 million. There may be a little bit more upside in that as the year progresses. We're spending more on marketing. As that marketing becomes more effective, we're increasing the amount we spend. That pulls profit back a little bit to give you the GBP 110.5 million profit for the year-end. That would result in earnings per share up 12.5%, assuming we can buy back all that we can use all of our surplus cash to buy back shares in the second half. If we can't, it won't affect TSR because we'll put it into special dividend. Add to that dividend yield around 2.5% and you get to TSR around 15%, which we will be very pleased with if we can achieve that.
Standing back from the numbers, just to talk about the shape of the business, NEXT has evolved slowly over the last 10 years into a very different business from the one it used to be, and in your pack, we've given a real analyst's delight, I think, of the participation of every segment of our business by brand, by geography, given the participation, the sales growth in percentages, and the sales growth in cash, so hours and hours of fun with your spreadsheets, getting ever more granular predictions, but it does bring home that the business has changed and that the business is far less constrained by its core brand in its core market of the UK, and it's a sort of story of quarters, really.
If you look at the business now, we're taking nearly a quarter of our sales, and by the end of the year, probably it will be a quarter of our sales overseas. If we look in the U.K., we're taking just over a quarter of our sales on non-NEXT brands. If you look overseas, where you'd expect the NEXT brands to be pretty much all our sales, it isn't actually. And we are getting some traction overseas with non-NEXT brands. The difference between the non-NEXT branded business overseas and the U.K. is that overseas, our WOBL business, the wholly owned brands and licenses are a much bigger percentage of that business. And when you think about it, there's an obvious reason for that. Overseas, on all the other third-party brands, or most of them, we are competing with other local, often dominant aggregators for sales on those brands.
But in the brands that we own that have much less exposure in those markets, we're often the only source of those brands. In terms of growth, what you can see is it's the peripheral, the smaller businesses that are outside of our core NEXT U.K. business that are delivering the growth. And if you look in cash terms, it's pretty even. Still, the U.K. is delivering the majority of our growth. NEXT brand in the U.K. is delivering GBP 75 million of the growth, although that was boosted in the first half. So you would expect that number relative to the other numbers to be lower for the full year. And what's driving that growth is a combination. I'm going to just sort of focus on four things.
There are lots of things we're doing, and this is not a comprehensive list of all the things that we're doing to drive growth. But I'm going to focus on four things: products, the new warehouse and how that's going, our international websites, where we've made a lot of progress, and international marketing. Starting with product, breaking it down into three sections: NEXT, third-party brands, and wholly owned brands and licenses. The NEXT brand is where I and most of my colleagues spend the vast majority of our time. And there's not a huge amount to say about it, but I wouldn't want the absence of a long exposé for you to think that it's not where we spend most of our time. The emphasis here is, as I've said, for the last three results on three things.
First of all, really delivering news, delivering new trends when they first appear as soon as possible with conviction. And where we've done that, it has definitely paid off. And it does seem to be a general trend that we're seeing across everywhere that delivering the right newness pays off. And you can't do that old thing of saying, "We'll try something this season, and if it works, do a lot more of it next season." Next season, it's too late. Secondly is improving quality. Improving the quality of every part of our every bit of our price architecture, improving the quality. The main thrust there has been improving fabric and yarn. And working harder with mills before we've necessarily decided which garments, fabrics, and yarns are going to go into, to develop fabrics and yarns earlier in the product life cycle.
Again, where we've done that, that has delivered, we think, much better product. Not just at the sort of mid and upper price points, but actually in one case in particular, most noticeably at the entry price point where we've really been able to sort of engineering fabric and yarns, we've been able to significantly improve the quality of our entry-level product. The third thing is pushing the boundaries of our price architecture into delivering more items at the top end of our price architecture. It is worth saying we think that is the way that the market's going. It's not a dramatic effect, but if you look at the increase in our like-for-like product, the like-for-like product is up by around 1% in price. In essence, factory gate prices that we pass through to customers up around 1%.
The mix, what people are actually buying, is up 4%, and we think consumers are buying slightly fewer, slightly better things, and that's certainly everything we can see from our sales data is telling us that. In terms of third-party brands, third-party brands had a good season, up 16%, delivering GBP 67 million of growth. The thing that has really made the difference here has been focusing on our major brands. We spent a long time building our brand portfolio, adding new brands. We've gone back and really focused on getting the best offer from our biggest and most popular brands, and the story there is exactly the same as the story on the NEXT brand. We have had to be braver with buying more of their new products than we have been in the past on wholesale.
On commission, we've had to force them to be a little bit braver about putting things that they haven't had a lot of history. Not force them, encourage them to be braver about putting more of their newer stock onto our website and being braver with the newness and making sure that we're backing that in depth. And I suppose that's the positive. The negative is not relying on last year's best-selling blue v-neck or white polo shirt to deliver exactly the same as it did last year this year. That is definitely not the way to be successful on brand. So a bigger push for newness there. Two smaller things to talk about. We have got a very good sports business, but it's mainly athleisure parts of the ranges, people like Nike, adidas.
We have performance items, but we really want to push the performance element, to offer our customers more performance sports products. We're adding brands like On Running this season and Hoka next season. We've sort of got a dedicated part of the website. This product is available generally on the website. If you want performance sports, there's a dedicated sports club part of the website where we're grouping together all the performance sports there. We think that's a good opportunity for us in the longer term. Sort of an acorn, and this is an acorn. Don't expect anything big from this. This is the type of this is the way that NEXT grows. We don't ever spend vast amounts of money building new businesses. We start with small experiments that take us into new markets. Seasons is a case in point.
This is selling top end of the premium market and luxury goods. It's small business, but we are beginning to get traction on our premium website. It's a separate website from NEXT. What we are able to do is advertise those products or those brands on our website or to our customer base of 10 million customers and move them across the Seasons website. So it's a slow-burn business. Don't expect me to talk about it again for another five years. But it's just an example of how we sort of plant a seed that may or may not be a big business at some point in the future. In terms of the wholly owned brands and licenses, this is, in many ways, the most exciting part of the business. Our wholly owned brands and licenses grew by nearly 100% overseas. They fall into two categories, just to remind you.
Wholly owned brands is where we either buy a brand like MADE or Cath Kidston and find a team to run it, or where we start a new brand internally like Love & Roses and Friends Like These. Brands you won't really hear of every day, but something like Love & Roses, both those businesses take nearly GBP 100 million. So good, small niche brands. On the other side, licenses, this is where we take great brands who have got, let's say, a great adult clothing range but want to do children's wear or want to produce furniture. We use our sourcing expertise and our products, our skills at buying those products, quality standards, and all the rest of it in order to provide ranges for them, for those brands that fulfill the ethos and look and feel of the brand but give them exposure to different categories.
The way that works is that we buy the stock and pay them royalty. So it's pretty much full margin less the royalty. In terms of where those brands fit relative to NEXT, you all have seen these graphs, these bubble graphs. We're not great fans of them. But if you say NEXT fits somewhere sort of towards the more expensive and more fashionable end of the general market, center NEXT on that grid and show where all the brands and licenses that we have sit relative to the NEXT brand in terms of price and fashion. What you can see is that the weight of the brands is slightly more fashionable in terms of weight but definitely more expensive. So in terms of cash, 55% of them, for example, will be more expensive. 20% will be more than 25% more expensive than NEXT.
And we think this is a good thing for two reasons. First of all, we think that it makes our website a more aspirational place to shop, potentially attracting new customers to the website. But as importantly, if not more importantly, attracting more brands to the website. We think it makes it a more attractive place for brands that want to go to an aggregator to come to NEXT. And the other important point is that, of course, the higher the price point, generally, the better the economics. Because the unit costs of shifting a GBP 50, GBP 60 t-shirt are not much different from the unit costs of shifting a GBP 5 t-shirt. So we think sort of economically more advantageous.
And you might look at that and think that the way that we've built this business is through very clever people in the boardroom coming up with a grid and post-it notes and circles and having some sort of digital representation of it with market research. And nothing could be further from the truth for two reasons. One is we don't have clever people in the boardroom. And sorry, I'll obviously excuse me on Non-Executive Directors who are here today. And the other is it's just not how the real world works. That's not how you create great brands for consumers through sort of market research. The way that these businesses have been built is really simple and opportunistic and is basically about finding great people. Where we've got new brands, it's about finding brilliant people to drive those brands.
And that is a truth that we know from our own business. At the end of the day, the best product is driven by the best people. And that's as true of the new brands that we're starting and the ones that we buy in as it is our own brand. And with licenses, it's about partnering with brilliant licenses and licenses that can genuinely bring something different to the table, whether that be their print archive or the people that they currently employ or their point of view. It's about having something that is genuinely great for the consumer that we can translate into product that those licenses couldn't produce for themselves. Whether they're big existing businesses that might want to go into children's wear like Superdry and smALLSAINTS, or whether they're very small businesses like Rockett St George.
George, that is a very small business that just hasn't got the capacity to produce everything from a side table to a dress. And the aim is to create a brilliant place, an environment, a brilliant place across all NEXT, WOBL, and third-party brands, a brilliant place for product people to create great ranges. But if you were someone thinking, "I could go off and start my own brand," actually doing it at NEXT, you've got all the resources of the business there that we've got our systems, the access to our sourcing base, all of the tech that we have around producing quality support if you want that. So it's a great place to produce fashion. And of course, the other big advantage is that instantly, overnight, you get access to our consumer platform as well.
So, warehousing, distribution, our UK website, International website, access to our network of international aggregators, our Online marketing, all the technology that sits behind our websites you don't have to develop yourself. And of course, the cash that we're generating that can fund these businesses. So that is the objective. There is, however, and it's very important that we're conscious of this, a risk in this. And we call this the sort of playdough or plasticine risk. And those of you who, like me, have young kids or five-year-olds, playdough is beautiful stuff when you buy it. It smells delicious. It's squidgy and soft. It has these vibrant colors. And that's how it looks on day one. And after two and a half weeks, it's basically a crusty pile of brown stuff. It's all mudged into one.
The risk of all sort of retail conglomerates, I think, is that they end up all the brands and products end up looking exactly the same. I can't guarantee that will always happen, but we are acutely aware of that risk and work very hard to prevent it. Three things are central to that. First of all, it's all bought by separate teams. We don't say to NEXT blouse buyer, "Go away and buy a Love & Roses blouse and then buy a Cath Kidston blouse." Those are bought either by dedicated licensing teams that are responsible for individual licenses or by completely separate teams in the case of Love & Roses, where it's their own team and often in a different location, not necessarily in the office either. This is a mistake we made when we first started these brands, actually.
They all assumed. We didn't say anything. It was like a Ouija board. It just happened. Everyone thought somebody else was moving the glass. We don't insist that they all conform to NEXT's quality standards, our fit standards. Because if they did, their product would end up looking like NEXT. Of course, it has to be merchantable quality. But they don't have to have the same rub test or the sofas don't have to have the same durability if they're high-end sofas because they're not going to be used as much. So it's down to those individual brands to come up with their own standards. It has to be merchantable quality. It has to be product that we are proud of. But it doesn't have to conform to NEXT standards. What it does have to do, obviously, is it has to conform to all of our ethical trading standards.
We don't want to be caught out by a brand that uses a factory that we wouldn't use as a group. The other really important thing is that we don't share data between the teams. When we started, they used to all get each other's data. And the first thing they did is look at each other's bestsellers. And of course, after 18 months, what we ended up with, every brand came up with its version of the other brand's bestsellers. So it's quite important to keep sort of data division between the teams and not think, "Oh, this is a wonderful opportunity to leverage our data," which is the temptation you start with. In terms of the parts of the business supporting that, I just want to focus on three. A quick return to the warehouse.
This is the new Elmsall 3 warehouse, just so you know how it's going. Capacity is up and running. It's delivering more than a 40% increase in capacity on where we were two years ago. The cost savings that we were expecting from the warehouse are, as we expected, in fact, slightly ahead of where we expected them to be. It's worth just sort of looking at that in terms of long-term sort of trends in cost per unit. This is cost per unit in real terms, so adjusting for inflation of wages, and you can see that sort of since 2022, we have achieved a marked improvement in productivity in our warehouses.
Firstly, through new sortation equipment that we introduced in 2022, then through just having the additional space from South Elmsall 3, and this season through the ramping up of the mechanization and moving to more efficient automated picking within the warehouses. We think we've got further to go on that as well. It is not quite as good as it looks because, obviously, wages have gone up faster than we could become more productive, but not a lot faster than the average selling prices would have gone up across the group. In terms of service, this is an amber tick. So it's sort of good news and bad news here. In short, the good news is that we are delivering better service than last year. Last year, this was what we call the notif rate. The order's not delivered on time and in full.
And it's not quite as bad as it looks. The vast majority of these are where customer orders average number of items, say, four or five items, and the fifth one doesn't turn up next day. It turns up the day after. So it's not a catastrophe, but particularly towards the back end of last year, that was not a good place to be. As we've started to fire up the new mechanization, we have really, since end of April, started to achieve much better service levels, but they are still not where we want them to be at 5%. The main reason for that has been the teething problems we've had integrating the new third-party warehouse control systems. These are the systems that actually control the cranes. They're not our software. We have the warehouse management system.
The integration, you will always expect teething problems, but they have been slightly more challenging than we expected. We're not concerned by that. It's a question of time. We think we'll be at around 6% by the end of the year. I'm going to say we're not concerned about that. Obviously, I'm jumping up and down in one way, but we do think that this is not structural. The problems, as we've gone along, are being solved, and we'll be at 6% by the end of the year, and we should get to 5% at some point in the first half of next year. In terms of international websites, who can forget this table? Whenever I bring this table up, my colleagues groan because they think, "Oh, you're just showing masses of data, and it's hard to read." This is a really important table.
It's in your pack, so you can look at it at leisure, but basically, what this sums up is, in January 2025, at the beginning of this year, how many services we had in how many of the countries that we operate, so for example, we operated and still operate in around 83 countries. We only had customers going to be paying local currency in 56 of those countries at the beginning of the year. We've worked really hard over the last six months to improve that, and you can see that now all countries trade in their own currency, and you can see that pretty much every service, we've increased our coverage. Parcel shop's the only one that we haven't cracked yet.
We're really waiting for the ZEOS transition to be complete before we move our systems teams onto that because we thought it was more important to prioritize the ZEOS transition than parcel shop's. And marketing spend is the other one where it's more than 5% of sales. In some ways, that's encouraging because it shows how much more potential we've got in terms of increasing our marketing spend. In terms of what that means in terms of the this is what the countries we serve are as a percentage of the total clothing market in those countries. And you can see on local currency, we've gone from 70% of the potential market to 100% of the potential market of the countries we serve. There's still a way to go, and the numbers aren't quite as good as they look.
For example, on that top line, local currency, although we weren't serving 30% of the market with local currency, actually, in January 2022, that only represented 0.2% of our sales. What we've, in effect, done is we spent a long time investing in functionality and services in markets where we weren't taking a lot of money. You could say that sounds like a bit of a waste of time. It hasn't been hugely expensive. There is a chicken-and-egg issue here. If you don't invest in a website that has local currency and local language registration, how on earth can you expect to grow the business? You'll never really know the potential of the countries that you haven't got traction in until you do all of this.
The work we've done here is what explains the traction we're getting in that rest-of-world segment that I showed you earlier on, the 28% growth we're getting there. Just to give you one example of that, just to sort of give a bit of color on this. In Japan, we were marketing in Japan. We're spending a little bit of money on marketing in Japan, Spring/Summer 2024, but we were only getting GBP 1.19 back for every pound we spend. That's not nearly enough. We need to be at GBP 1.50 to really justify spending a lot of money on marketing. In the interim period, we've got local language registration. We've optimized our product listing page, which means it's much more appropriate to local markets. We've got local sizing conventions, which means, for example, we, very sensible idea, this actually.
In Japan, they do children's sizing by the height of children in centimeters rather than their age, which is actually, I think, sensible anyway. We've switched to those local sizing conventions. And we've improved conversion rate on the website as a result of that by around 6%. We've also made sure that we're paying the proper duty and getting the product into the country effectively, which is no mean feat. And we've increased our prices slightly. That's moved margin forward by 12%. Net margins have moved forward by 12% on that website. It was sub-6%, and now it's in the mid-teens%. What that means is that our marketing's gone from 1.19%- 1.70%. And as a result of the marketing activity, which has only really just started, sales` are up 20% so far this season.
So it's a good example of that sort of chicken-and-egg is get the fundamentals right, increase the profitability of the website, and then you can afford the marketing, and then you get the growth. In terms of marketing, not a lot to say here other than overseas, we've increased by 57%. That number in itself is not that remarkable. What is really remarkable is the fact that our returns have not only not eroded. They've edged forward very slightly. We think that it's mainly about all the improvements in functionality and everything we've done to improve conversion rate on the overseas websites and the product that we've added to those websites, in particular, our own WOBL product. But it's also about the added technology that where we're getting better at using our existing main suppliers. The big people like Meta and Google are getting better at using them overseas.
We're forging new regional media partnerships in countries where the big players in the U.K. are not necessarily, they don't have as much of the market as they do in other countries. And we're beginning to invest the time, the human resource, and people to start marketing and doing marketing programs in the smaller countries in which we operate. So kind of when you pull all that together, we've got four things, and these are not exclusive, but that are driving growth. And I think what's interesting about this is that marketing piece. Because what you begin to realize is, yes, better product, of course, better warehouses and all the other services we wrap around that call centers, the website functionality, all of those things do drive sales. But because they drive sales, they also reinforce marketing, and they allow us to spend more on marketing.
Because if the customer's more likely to buy when they get to the website, you can spend more money to get them there. The final thing I want to talk about is cost control. You'll have gathered from the frequency with which we micromanage the allocation between our brands and NEXT and all the things we do to manage profitability. But we are obsessed with profitability. And people often think that that is just about, and I say just about, it's very important. They think it's just about, oh, capital allocation and shareholder returns and de-risking the business through having adequate margins. And it is about all of those things. But it's also about growth.
Because if we can control our costs and make sure that every transaction that we undertake is profitable, that means that we can afford to spend the money driving the part of the business that is growing fastest. And our control of costs and understanding of the profitability of every element of our business is one of the things that has done most to enable the marketing that is pushing growth forward. So, whereas, and in this respect, and only this respect, our finance teams are heroes. You don't often hear that said in a fashion retail business, but it's true that the work we do on profitability is as important as all the other things. I think what also becomes apparent when you look at these things is that none of them on their own are enough.
If you want to sort of look at NEXT, and occasionally people sort of terrify me by using the phrase "well-oiled machine" and all that sort of stuff. There's no well-oiled machine. There's no moat. There's no USP. There's nothing that can't be copied or done by others. Success for us, and the risk and the opportunity, is all about execution. It's all about all of these areas being good. It's no good having great product ranges if you can't get them out of your warehouse. It's no good having great warehouses if your website doesn't work. Every single area of the business has to execute brilliantly. If it does, it's mutually reinforcing. If you don't, it is mutually undermining. If you want to sort of look at NEXT and look at the risks and downsides, the risks and downsides are all about execution.
I think what has changed, and by the way, opportunities. I think what has changed from 10 years ago, all of these risks were there 10 years ago, exactly the same. What has changed about the business is that whereas 10 years ago, our runway for growth was really constrained by our core brand in our core market, the difference between then and now is that the opportunity for growth outside of that core market has opened up, both in terms of the products we can develop and sell on our websites, the non-NEXT brand we can sell, and in terms of the countries that we can develop in, so in the report, we've said we recognize the challenges of the U.K. economy and the challenges of executing well, but on balance, we think that the opportunities outweigh any of those threats.
And on that uncharacteristically optimistic note, we'll go to questions. And I've been told to remind you that in this wonderful high-tech auditorium, you have microphones there, so you don't have to have people running to you. You pick them up, apparently, and press the button. And not only can we all hear you, but it'll be recorded for the transcript as well, so you'll be famous. So over to questions.
Well, thank you very much.
How are you?
Thanks. Morning, Simon. Warwick Okines from BNP Paribas Exane. Two questions, please. Is the opportunity to develop the WOBL brand 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 it's sort of the difference between macro fishing and whale fishing. Total Platform, where we make a difference, is 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 WOBL 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 Elmsall 3. 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 in exchange for warehouse improvements in terms of sales opportunities because I think it's much longer-term. So great service is a longer-term opportunity to acquire and retain customers rather than immediate fill-up to sales.
Thanks, Simon.
Hey, it's 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 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, isn't it?
Yeah. Yeah. GBP 2 million. 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. Yeah.
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, etc., 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're talking about: 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 playdough risk in the number of brands? Do you think there's also a risk in terms of average pricing that you're putting forward to your customers?
Well, 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's just 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's 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 in 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 website into Zalando, which means that there's a shared stock pool. And what that means is that both our website 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. A couple from me, please. First one is on sourcing. Simon, I 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?
The 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 most of the stock we buy is dollar denominated. I'm going to guess that around 80%. What was your? A bit higher.
A 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 the NIC increased.
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." 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 my business. Yeah.
Thank you. Sreedhar Mahamkali from UBS. A couple of questions. Firstly, 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? 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 IRR for buybacks or both capital allocation decisions?
It doesn't mean anything for IRR and buybacks, obviously. At 8%, because I mean, the Retail business is only 20% of our business, and the Retail new space might account for 1% if we're lucky of Retail sales. For us to change our IRR as a result of that, it wouldn't make sense. 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. 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 IRR. In terms of marketing, it might. I'm not going to rule out it growing.
I think it's very unlikely to go 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 data 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, they say, "Oh, I'm coming to you because I can't go on 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, there aren't. 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. Well.
Fair enough. 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 WOBL 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, I get that it's sort of sector-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 for 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. 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 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 another GBP 350 million. So 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 U.K. who have a credit account? I'm not really talking about this half year, more this broad sweep of you continue to have 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. So I think, first of all, the vast majority of credit customers are not first-time customers. So it is a question of converting cash customers into credit customers. In terms of behaviour, 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. So I think that is what's driving a sort of consistent reduction in debt rates. And then I think also a lot of customers who are switching from some of the customers are switching from cash. I think more of them, and I haven't got numbers for this, sorry, 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 [Mandy Tussaud] from Citi. Thank you, Simon. Just one. When we toured your warehouse, you talked about potentially offering the spare capacity to other brands, Zalando and ZEOS. Obviously, now you have maybe more capacity from shifting your stock to Zalando, but then you've also talked about improving the performance and reliability of the brands. 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 gross 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?
Yes. 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. 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%, 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 that 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 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.
If in real terms, the price of clothing genuinely, 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. I'm Anupam 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. I'm on to 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're having 26 weeks of cover almost. How do you balance those two requirements? Because 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?
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. The 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 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 catch the trend. It's the speed at which you go from seeing the trend to executing it with authority and at height 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 there was a point at which we were encouraging wholesale to move to commission. We're not really doing that anymore. We'll go 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.