What happened?
Next has bought clothing chain Joules for £34m. This comes after Joules was put into administration, after they failed to secure emergency investment.
The move has saved around 1,450 jobs, however, 19 stores will be closing their doors with immediate effect.
Image Courtesy of BBC.co.uk
Why have I chosen this story?
I think Next is one of those stores that have great designs and products catered toward toward the more formal end of things, like workwear, for example. Every once in a while, I like to shop and window shop at Next. I like the quality on their products, even if some items come with a price...
I also know Next acquired Made.com, which only happened a few weeks ago. I thought it would be interesting to look into why this was happening to Joules' and what it could mean for Next.
How did Joules get here?
First, some context:
Joules is a British clothing company, which sells homeware and clothing products, "inspired by British country lifestyles." It is well known for its unique patterned wellington boots and jackets. It was founded in 1989 by Tom Joule, after he spotted a market for , "colourful wellies at country fairs." The company floated on London's Aim stock market in 2016. Pre-acquisition, Joules had 132 stores located across the UK, and around 1,600 staff.
Image Courtesy of Manchester Evening News.co.uk
Next is a British multinational footwear, home products and clothing retailer. They have around 700 stores, most of which are located across the UK, and some across the Middle East, Asia and Europe. Next will pick up 100 stores from Joules, and around 133 staff will lose their jobs.
Joules went into administration last month, with the main factors being decreasing sales and rising costs, the cost of living crisis and the current economic environment the UK is in. The UK summer heatwave has also played a role, as it meant that there was a reduced demand for their famous wellies (I mean this makes sense, it was the summer season...) All of this has contributed to slower trade and falling sales.
Such circumstances have affected their shares too. Less revenue/profit=a decrease in their shares. A decrease in their shares means a decrease in their market value...which isn't what shareholders want. The value of shares has fallen by more than 95% over the course of the past 12 months.
So, what does this mean for Next?
Next will take a 74% stake in the business, with founder Tom Joule owing the remaining 26%. It's an all-cash deal and this means that Next's board of directors will ultimately manage the strategic day to day decision-making within the company. Next has also paid £7m to buy Joules' head office, which Joules had paid £20m for less than a year ago...
Image Courtesy of Pixabay, Pexels.com
More innovation for Next. This is not the first company that Next has acquired this year. Just a few weeks prior, Next brought Made.com for £3.4m, also snatching up its domain names, intellectual property and brand...A clothing company and an online home accessories and furniture company brought all within the space of a few weeks?? It's game time for them!
Lord Wolfson, the chief executive of Next has stated, "We are excited to see what can be achieved through the combination of Joules' exceptional product, marketing and brand building skills with Next's Total Platform infrastructure." I go into a little more detail on the platform below). Such ingredients can be said to promote the success of Next even more, by making Next a more unique brand overall, for example. A greater market share, new niche offerings and cost reductions are just some of the reasons as to why companies acquire. I wonder how things will fare...
Image Courtesy of Independent.co.uk
Next's Total Platform:
Total Platform is a, "third party e-commerce outsourcing service", that offers a, "complete suite of online services". Such services include, warehousing, marketing, distribution networks, websites and contact centres.
To date, Total Platform's six clients are: Victoria's Secret, Childsplay Clothing, Aubin, Gap, Reiss and Laura Ashley. Lord Wolfson stated that the retailer is not expecting a "rapid acceleration" of the brand until 2023.
Image Courtesy of Retail Gazette.co.uk
In 2021, sales through Total Platform was approximately £18m. The availability of warehousing space is a factor that has constrained the growth of the platform. Next plans to open a new warehouse by the end of this year, to help manage the growth of Total Platform, as well as the increase in online orders.
Reiss was made a client in the spring of 2022. The CEO of Next further said, "Reiss will be a big step-change...we are using Total Platform to service its overseas businesses from our UK warehouses, which is something we are not doing for other clients."
I think Total Platform is a good idea that could help attract more clients to Next. The shift to online shopping means that Next can benefit even more from sales into overseas markets (without the associated retail overheads, such as administrative costs) and sales commissions on third-party brands.
Let's zoom out into the UK retail industry...
Next is the second-largest fashion company in the UK, with a market value of around £7.16bn. It comes behind Burberry (the UK's largest fashion company, worth around $10bn) and before Marks & Spencer and ASOS (third and fourth, respectively, both worth around $6.18bn).
The British retail industry is a very competitive market in general. Let's not forget that Next has an online retail branch and a physical branch, of which the former brings in more revenue. For example, in 2021/22, Next generated approximately £3.1bn pounds through its online channel, and around £1.4bn pounds, through retail.
Covid-19 and the lockdowns it brought, saw a significant increase in the amount of people who shopped online. I think this is a trend that has slowed down, but only by a small drop (since lockdowns have ended). According to Trade.gov, "Internet shopping is more popular in the UK than in any other country". I think that physical stores are still popular though, because people still enjoy the idea of seeing, trying and touching a product before they buy it- it's a trait that online shopping cannot replicate. Not to mention that it's the Christmas season, which will draw more people out of their homes and into stores.
Image Courtesy of cottonbro studio, Pexels
Analysis (S.W.O.T):
S- This is good news for both Next and Joules. Joules entered into administration only a few weeks ago, and they've been brought up already. They also had a lot of interest from various parties. Jobs and stores have been saved, which is good for staff, especially in the economic environment the UK is in.
W- If Next were to snatch up another company in the near future, will this ring the regulators alarm bells? The Competition and Markets Authority is the competition regulator in the UK, who work to promote competition for the "benefit of consumers." I don't think Next are exercising any anti-competitive behaviour now...With that being said, Next have some catching up anyways, especially if they want to de-crown Burberry from its no.1 position as the UK's largest fashion company.
O- Companies only file for administration if they're struggling, and companies only acquire other companies if they are doing well and have the finances in place to buy. It goes to show that sometimes there are winners and those that don't do as well within a market. I think Next has seen their recent acquisitions as an opportunity to not only expand and innovate their business, but to also try make the company into an even more powerful player within the retail market.
T- I think acquisitions and a re-shuffling within a company go hand in hand. I'd say Next and Joules' are pretty similar, in terms of the products they sell. However, staff under Joules' will need to assimilate into the culture and operations of Next. If staff don't enjoy life under their new commander, or people in different departments of the business don't get along, it poses a problem. The employees of a company has as much impact to the success of a company too.
Image Courtesy of Olia Danilevich, Pexels
My thoughts:
This all goes to show that one minute a company can be doing relatively well, and next minute, it all comes crashing down. Made.com and Joules' demise has been as a result of various factors, such as high inflation/interest rates, a war in Ukraine, supply chain issues, high energy costs. Companies should at least have something in the back of their pockets in preparation for the unknown, and these two companies can be examples of how to not be innovative when the market is going through a rough patch.
That's it for this week's story, what are you thoughts? Do you think that Next will acquire another struggling firm in the near future? I'd love to know your thoughts, send me a message on any of my social media platforms or an email: thelegalchristian@hotmail.com
Until next time, stay curious!