Richard Chamberlain, RBC. Just one from me, please. I see there's quite a big step up in marketing for the overseas online business. I think it's coming through, particularly in the second half. What sort of results have you seen from that so far? I mean, is that driving quite a big top-line acceleration? And is that the reason why you're expecting the overseas online margin to sort of fade down again in the second half? Is that a major reason behind that? Thanks.
It's a part of the reason. There are all sorts of other operating cost savings in the first half that we'll have annualized by the time we get into next year. It's not just that. We are expecting overall to spend more on marketing, and I think this is a really important question, actually. What we've done overseas is there are a number of territories where our prices have naturally gone up in pounds because of the exchange rates. Or we've actually, in lots of territories, we've put our prices up marginally because we made a mistake when we went overseas. We've realized we made a mistake, and the mistake was we thought it's just like the U.K.
All we've got to do, the most important marketing we do, is getting the price right, the best price we can possibly offer, hit our target margin, and that is what it takes to be successful. And that's fine if your customers have heard of you. But actually, you're best - and you talk to a very wide audience that can't see or hear you. What we think it's better to do in a number of territories is to narrow the audience by pushing the prices up a little bit, make higher achieved margins, and use that to spend on marketing.
And you kind of get a bit of a virtuous circle there because every pound of marketing you spend makes more profit, and you can do so without eroding your bottom-line net margins. So, in essence, what we've done is we're going to increase investment in marketing at the expense of decreasing investment in price. And the returns we're seeing are very strong. I wouldn't want to quantify how much sales growth we think we can get from that because I'd rather do it first and then tell you.
Yeah. All right.
Thank you. Good morning. Warwick Okines from BNP Paribas Exane. Could you just talk a little bit more about, about Reiss? Are there things different that you can do with Reiss operationally and strategically, with your higher share ownership, or is it financial? And maybe does Total Enterprise Platform play into that?
No, it's the bottom line. No. I think I'm always nervous when anyone says anything strategically. You've got to be careful of that. So no, I this is not an enabling increase in stake. This is because we really fancy their long-term future. Now, I should say, short-term, we can't, you know, brands go in and out of fashion. But we think where Reiss is in the market, it's a great brand. It's got a lot of space between it and luxury and a lot of space between it and mass market. So we think it could be a great brand.
We think it's got a great management team, who can develop new products, push, you know, into new markets overseas. So we think there's a lot, long-term, there's a lot of potential, and that's why we've bought it. We haven't bought it with, you know, with T, Total Enterprise Platform in mind, not least because their overheads are already very well controlled. So the opportunity is much lower. And our sense at the moment is it's just not worth the disruption. Sorry. Look, I'll come to you next. You're a bit.
John Stevenson at Peel Hunt. A couple of questions, please, Simon. First, up on the headroom on the way out, you talked about sort of GBP 1 billion of sales headroom. Is that based on current throughput and technology, or is there sort of more to do? And connected to that, you obviously talked about the service levels, the efficiency at the moment. How are those service levels compared to pre-COVID and now post-investment? You know, what can we do over the next couple of years to improve both service and cost?
Yeah. Good point. Excellent point. So, the answer is, that increasing capacity assumes that all the automation comes online and works as we were expecting, both of which we have yet to prove. What we have done, and you'll notice in the walk forward on costs, we've assumed that the system is pretty much fully implemented by April, May next year. But we've assumed that a lot of the savings won't be achieved till the following year because our experiences with automation, it does take much longer than you think to really get the full benefits of efficiencies and cost savings.
So I think the best answer about the cost savings is that those, that chart we gave, which showed, I think, 14 million of the benefit coming not next year, but the year after. Is it 14 million? Yes. Yeah. And then, as I kind of alluded to, I'm hoping that all of those service metrics that you saw on that graph, that chart, will improve further, not just as a result of the automation, but also I think we can tighten up our operation further now that we've got the space to do it. Sorry. Yeah, you.
Thanks. Hi, it's Georgina Johanan from JP Morgan. Two questions, please. The first one, thank you for the color on the potential pricing outlook in the first half of next year. I guess just to understand better how that would potentially look for autumn/winter 2024, given what you're seeing at the moment, because I guess from the outside in, there's a bit of a disconnect with many of those pressures actually not just having eased but moved backwards, yet also pricing being materially higher or double-digit higher than it was before and your historical comments around maintaining gross margins. And then my second question was just on sort of Total Enterprise Platform. I think historically when you talked about it, you talked about businesses with online sales in excess of around 30 million. But now, obviously, direction seems to have changed a little bit. How do we, like, assess the opportunity set? Like, are we talking about struggling U.K. retail businesses? Like, how are you thinking about that, please? Thank you.
So, both very good questions. And unfortunately, the short answer to both of them is don't know. So autumn merchandising, we really haven't started contracting yet. My guess, if I had to guess, I would guess that it's going to be broadly the same as spring/summer. But there's an awful lot that can happen in six months, as has been proven for the last six months. So I wouldn't want to be hostage to fortune on that. I think what we have proven is that whether it goes, whether prices come up or down, we'll continue to do the same thing as we've always done, which is pass both good and bad news through to consumers. So of that, you can be sure. What we can't be sure of is what's going to happen to prices.
In nominal terms, I'm not expecting prices to go back to where they were pre-COVID. But I don't think that's a problem because I'm not expecting wages to go back to where they were pre-COVID either. So in real terms, I think this is sort of no-score draw. In terms of Total Enterprise Platform, again, the answer here is this project is evolving. I think the 30 million rule still applies. Because even if you're applying Total Enterprise Platform, the one of the key questions we have to ask when we look at taking a stake or acquiring the whole of a business is can we add value? And if the turnover is less than 30 million online, because so much of the benefit we add is online, even in TEP, all those systems, a lot of them are systems to manage an online business. I just think it's still that threshold is still there. Okay. Andy.
Hey, it's Adam Cochrane at Deutsche . You've mentioned the benefit of higher ASP a couple of times in reference to handling costs, distribution, et cetera. With price inflation going towards zero, does that mean you have to work even harder? What can you do to offset some of those challenges in, effectively, your per unit cost on both international and the U.K.? And then the second one on Total Enterprise Platform, if you've got these ambitious growing brands, what can you offer them to help them with any overseas expansion if they're fully on board with your Total Enterprise Platform? Thanks.
Okay. So, first, you know, what can we do to offset the potential decline in ASPs? I think you're running ahead of yourself there. But if there is a decline in ASP, we think that's going to be hugely positive for demand in the way that rising ASPs were negative for demand. So I'm not overly concerned about that. And of course, declining ASPs, if they occur, which I think is unlikely at any significant level, but if they do, it will push up operating costs. And I think the answer is that schedule we showed you of cost savings going through. But we'll do that whether or not average selling prices go up or down because the savings are there to make, and so it's sort of slightly counterintuitive. It wouldn't be very sensible to say we'll only save them if we really need to.
So, you know, I think that is the answer. But whatever happens, if average selling prices drop, it's good news for consumer, good news for demand, probably. But, you know, not such good news for some of those cost benefits that we were anticipating won't, won't be as great, then in terms of overseas benefits to potential clients, I think the most important thing we can offer them is a website that will be transactional in 70 countries overnight and relation with all the relationships that we have developed online with companies like Zalando, Otto Versand, Zalora, all the aggregators we use, again, we can turn those relations on for them at the flick of a switch, literally just adding them to an assortment, and they're going out of the same warehouse to the same aggregator.
So that's the. It's pretty comprehensive what we offer. What we don't offer and what we're working on, and we've alluded to this in the document, is the wholesale relationships that other people have with, you know, licensees. But that is one of the things that we're really putting a lot of effort into at the moment to try and build a sort of wholesale licensing franchise businesses business for the countries we can't reach through our direct websites. Yeah.
Thank you. Sreedhar Mahamkali from UBS.
This is like when the Liberal Democrat leader stands up and asks a comment. Anybody else want to go before we start? Anybody else? Anybody else? No. Okay. Go on. Seize your chance. Carpe diem. Very good. Sorry. Go ahead.
Thank you, Simon. A couple of questions. First one is on product mix. I think you've referred to a push on design reach, I think top-end products you were calling them, versus basics and entry price. How has the mix actually changed within the business? Is there anything noticeable? Is there any numbers you can share with us in terms of basics versus the products you've referred to or average selling price or anything like that? And the second one is, I think somewhere along your prepared remarks, you said you may find more cost savings next year. Can you maybe expand a little bit? How do you think about them in terms of, like, do you set out now planning with whatever sales outlook you plan on, you know, you need to make a certain level of cost savings, or is it much more a natural and organic process looking for those cost savings?
Yeah. I mean, first of all, the way we do most things is natural and organic. That's sort of the way we operate. So, I think, your first question was about, what's happening to the overall shape of the range. I can give you lots of statistics, but they're pretty meaningless, and I would have made half of them up. So I think it's not sensible to look at that. I think what, and it's not, one thing I want to be very clear about, it's not that we're retreating from our entry-level prices. We're not saying, "Oh, it's this at the expense of that, so cut some of the bottom and add some of the top." It's really just bolstering the middle and top because we're not constrained on options online. It's not about one part of the range at the expense of the other.
I think that's a very important point. The, and the only statistic I'll give you, which I won't give you exactly, is that the average selling price, our sold average selling price, if we just take out all the units divided into all the money we've taken, has risen more by the increase in like-for-like prices. So mathematically, we are seeing a shift naturally towards the sort of middle and upper price points in our range. That's not something we're pushing, actually. It's something that's just happening in fashion. People are going for the textured weave polo shirt rather than the plain one, and that pushes, you know, that's more expensive than the plain one. That's just the way fashion's going at the moment.
In terms of the question, the second question, the cost control, we have what is in the business the least popular director meeting that we have every six weeks, which Amanda runs with a huge and comes in with a big stick and a calculator, and we sit down with all the main directors, all the cost center directors, and we have a bit of a chat about what their, all their ideas for saving money, what new ideas they've got on the table, and they have a scorekeeper, and it's all great fun if you're in the chair.
Hi. It's Simon Irwin. Can I just come back to you on your comments around labor costs next year? So I think the minimum wage is likely to go up 7%, so annualized with this year's 10.7% gives you about 8%. What do you think then your overall increase would be in that kind of environment, bearing in mind your kind of comments around the labor pool becoming easier? I mean, is it 2% less than that, or is it a bigger metric?
It's a great question. We haven't worked yet. We don't know. But the reason we don't know is because we don't know what the general award will be. We don't know what the award will be for our head office staff. So I can't give you a number. It's uncalculable without that other input number. But it'll be somewhere between 7% and the general award. But I could give you a number, but again, it would be one of those made-up numbers that I wouldn't want to chance my arm on. I think it's fair, isn't it?
Yeah. We'll decide head office bonus in January.
Pay wages.
Head office, yeah, pay awards in January.
It's the profits that decide the bonus, not us.
Yeah. Yeah. Yeah. Yes. Yeah.
Would you not be more optimistic about volume given that you're almost certainly to see a real terms, pay increase next year, assuming that, inflation is below that? You know, is it not reasonable to expect some volume recovery as prices come down and real wages go positive?
Let's hope so. But, you know, no business was built on hope. So I'm not going to. Yeah. I think it's very difficult to know. You're definitely right. That is a factor that we didn't mention, which is actually real wages, certainly relative to clothing, are likely definitely will rise relative to the price of clothing, and that should be good news for us. I think it's the impact of the sort of extra hours thing, mortgage rates, and job security that might weigh against that. And trying to balance, you know, which ones of those will be more powerful than the other is impossible at this stage. So we'll just wait till we get closer to the time, keep our buy budget very tight at the moment, and make that decision probably as we go into November, December. Yeah.
Good morning. William Woods from Bernstein. Could you give any comments on shrink given that many of your peers have commented on increasing theft and things like that? Thanks.
Yeah. I mean, look, we have seen an uptick in that sort of activity in branches. We don't really understand why. It affected our margins by about 0.2% in the half. Yeah.
Hi. Good morning. Nick Coulter from Citi, if I may, please. Firstly, when you look forward three to five years as you stand here today with your crystal ball, what—
We don't have a crystal ball. You know that.
I'm sure it's somewhere in the home collection.
Yeah.
Pretty good.
Balls. Crystal balls.
But what do you think will be driving the majority of the group's growth, and how significant might Total Platform be? And I appreciate that's a very, difficult question to answer. So maybe one that's a bit easier. Could you also comment on the impact of, or cost pressure from Business Rates next year as well, please? Thank you.
Yeah. I, so first of all, I don't think any significant impact on the group with business rates one way or the other. Dominic, you're in the room. Any?
No.
No. Nothing. Nothing that will move the dial, I don't think. Just coming back, I think it's very important that I don't give you an answer to your first question because it's just not the way we work, and we don't work like that for a really important reason, and that is once you have the leadership of an organization saying, "Our growth is coming from here," everyone in the business no longer sees it as their job to deliver the maximum growth they can within the profit hurdles and cost constraints you've given them. They see it their job as to fulfill your great vision of the future.
So we try to avoid great visions of the future and instead come up with ideas that we think are good ideas, test them, trial them, and then do as much of them as we possibly can. And it will be the outturn from all those different activities, the successes and failures we have in all those different projects that will determine the shape of the group. And to guess it at this stage not only would be impossible, it will be damaging. Don't worry. Just go for it. I can hear you.
Okay. Thanks. So I've got two questions, please. MADE.com has relaunched, and I just wondered if you could talk a bit about the potential you see for that over the years ahead as a standalone website. And then linked to that, you've launched a lot of different brands and have responsibility for many different brands these days. So I just wondered what the challenges were in managing that, and avoiding detracting from the Next brand. Thank you.
Yeah. It's a very good question. The second one, and it is the question. And the answer is independent management team, even if it's just like an internal license, that internal license, that someone like, let's say, Cath Kidston, the way we're going to set that up, is as its own profit center. It will charge Next and anyone else their license, a royalty fee. So if our women's accessories team start producing Cath Kidston bags, they will pay a 6% license fee to the cost and the profit center that is Cath Kidston. They will charge a 6% royalty. They will have their own costs to weigh against that: marketing, people, design. They'll have a target margin set, and that target margin will be geared up to returning, making a very healthy return on the capital that we have invested in Cath Kidston, including any startup marketing costs.
And then you have to let them get on with it. And it's kind of sink or swim because if you take the opposite view, if it's not sink or swim and it's help from the corporate structure and men in gray suits turn up and say, "We're here," or women in gray suits turn up, and say, "We're here to help," you end up with everything looking the same. So we think it is quite important to keep, and the other mistake I think we could make is recruiting into those jobs too many people from Next. So we're trying to keep the, you know, if you look at MADE and Kath, both of them, I think pretty much 100%, Jeremy's in the room, pretty much all of their staff are drawn from outside the group. But it's not just a good question. It's the question.
On MADE.com and the potential for that, please?
Yeah. One of the, again, really important things is that we're not going to comment on it in the performance of any individual business. I don't want to put any undue pressure on the managers of that business. They'll get their rewards if it's good and not if it isn't. And what matters to us is the portfolio, not the one we talk about in public. And I think, oh, no. Sorry, Simon.
Simon, forgive me for misquoting you from several years ago, but I think you said there's no such thing as sustainable competitive advantage in retail because someone comes along and does it better. But given, given the scale, given the investment you've made, given the model you've come up with, and leveraging the cash flow from a fairly resilient retail business, have you not just done that?
We'll see. We'll see. It doesn't—it in no way makes us a better-run company to think that we've locked ourselves into some mythical, unchallengeable advantage. And in fact, it actively weakens us. So even if it were true, I would deny it. I would actually—I wouldn't because that'd be lying, but you know what I mean.
Hi. Can I just ask on your international operations? Sorry, it's Anubhav Malhotra from Liberum. You talked about in the past aggregators having a very high return rate and that being a problem for you. So, what have you done in the first half to fix that, or is that still a work in progress? Thank you.
Yeah. Good question. We have consciously gone back to all of the ranges that we sell on all of our aggregators and analyzed the profitability, the individual lines we're giving them. And basically, in simple terms, we've taken off the low average selling price, higher return items. You know, each, it's a relatively simple calculation that you can make on an item by item or category by category basis. You know what dresses return on Zalando in Switzerland, and you kind of go, "Well, that means the price of the dress has got to be more than 35 CHF in order to hit our profit hurdles." Anything that's cheaper than that, either put the price up, put it into a pack, which you wouldn't with dresses, but either put the price up, put it in a pack, or take it off.
You've done the same with the labels.
Yep, and on that, bombs hel. I think we've run out of questions. Thank you very much, everyone. Enjoy the day.