Next put an extra £39m into digital marketing in its first half and told the City exactly what it earned: £1.82 back per £1 in the UK, against a hurdle of £1.50.
Next marketing spend rose by more than half in the first six months of its financial year, and the retailer has published exactly what it got back. Digital marketing investment went up £39m, a 56 per cent increase, and chief executive Lord Wolfson credited an “acceleration of marketing efforts” for a half that comfortably beat the company’s own forecast.
What makes the results unusual is the candour. In the UK, Next spent £52m on digital marketing, up 39 per cent from £37m, and estimates that marketing delivered 3.8 percentage points of its 7.4 per cent growth in online full-price sales. It also admits the return fell: every £1 spent generated £1.82 of incremental cash profit, down from £2.08 a year earlier, as Marketing Week reported.
Wolfson was clear that this is not enthusiasm. Next spends until the marginal pound stops returning £1.50 in cash profit, and not a pound further. He said the company was not “deciding to spend more because we want to” but because the returns sit above that hurdle.
Overseas, the same rule is pulling money in. Direct-to-consumer marketing abroad rose 63 per cent to £51m and returned £1.77 per £1, slightly better than last year. Europe took £26m, the Middle East £15m, and a £3m test in the United States came in at £1.48, just under the line. International full-price sales grew 24 per cent, and spend there is planned to rise another 42 per cent in the second half.
The group numbers followed. Sales rose 9 per cent to £3.54bn, pre-tax profit 10.5 per cent to £569m, and full-year profit guidance went up £12m to £1.255bn. Next paid for the extra marketing with warehouse efficiencies and better supplier terms rather than margin.
Most boards treat marketing as a cost to be defended. Next treats it as an investment with a published hurdle rate, which is the argument the effectiveness industry has been making for decades and which fewer than half of brands are even set up to measure. A finance-minded chief executive telling the City that savings elsewhere should fund more advertising is about as good as the case gets.
The caveat is what the number counts. Incremental cash profit on digital spend is a short-term measure, and it says nothing of what the Next brand is worth in five years. It is the same week John Lewis raised brand investment through a widening loss, betting on the long term with no such formula to point at. British retail now has both experiments running side by side.
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