The moat is their large infrastructure which compliments its superb online offering and their attractive store economics which compliments other segments. They also have strategic partnerships with brands like GAP who sell through them in the UK. Such brands only sell top performing items meaning inventory doesn't carry over. Additionally, customer wise they are positioned strategically right down in the middle, which typically do all of their fashion and home shopping from NEXT. Additionally, they tend to issue less promos compared to peers as their customers are happy with their prices. Hope this helps.
Hi Aalim, thanks for the reply. While all those are strategic choices and may very well be good ones, none of them constitute a moat, at least by my understanding of the word.
Well, the infrastructure allows them to scale their online offering, essentially their distribution network which has existed for decades allows them to provide their online offering which is profitable due to the sheer scale of the business. Other firms which compete can't really grow their online offering like NEXT without taking on gigantic losses as they don't have the internal distribution network to achieve economies of scale within their delivery and storage costs.
So to put it simply, the 'moat' is the distribution network and retail infrastructure that allows them to average out delivery costs and make the online offering profitable that makes it sustainable in the long run. Competitors may not be able to do this.
I mean as far as moats go, i think we can agree that’s objectively a fairly weak one. I don’t know Next’s exact competitive position in the UK and any other markets that may be relevant, but clearly they’re not so much bigger than any other competitor that it’s like with Amazon where no one else can compete. Realistically they might have a couple percentage points cost advantage, if they are the biggest. Next is not particularly cheap - obviously they are not trying to be the cheapest (primark have got that down), but i suspect if you draw a cost-quality best fit line, they don’t sit an insane distance below the line of other major competitors.
What is the moat here? They're neither price competitive on the low end nor a particularly strong brand, in my experience.
The moat is their large infrastructure which compliments its superb online offering and their attractive store economics which compliments other segments. They also have strategic partnerships with brands like GAP who sell through them in the UK. Such brands only sell top performing items meaning inventory doesn't carry over. Additionally, customer wise they are positioned strategically right down in the middle, which typically do all of their fashion and home shopping from NEXT. Additionally, they tend to issue less promos compared to peers as their customers are happy with their prices. Hope this helps.
Hi Aalim, thanks for the reply. While all those are strategic choices and may very well be good ones, none of them constitute a moat, at least by my understanding of the word.
Well, the infrastructure allows them to scale their online offering, essentially their distribution network which has existed for decades allows them to provide their online offering which is profitable due to the sheer scale of the business. Other firms which compete can't really grow their online offering like NEXT without taking on gigantic losses as they don't have the internal distribution network to achieve economies of scale within their delivery and storage costs.
So to put it simply, the 'moat' is the distribution network and retail infrastructure that allows them to average out delivery costs and make the online offering profitable that makes it sustainable in the long run. Competitors may not be able to do this.
Hope this helps.
I mean as far as moats go, i think we can agree that’s objectively a fairly weak one. I don’t know Next’s exact competitive position in the UK and any other markets that may be relevant, but clearly they’re not so much bigger than any other competitor that it’s like with Amazon where no one else can compete. Realistically they might have a couple percentage points cost advantage, if they are the biggest. Next is not particularly cheap - obviously they are not trying to be the cheapest (primark have got that down), but i suspect if you draw a cost-quality best fit line, they don’t sit an insane distance below the line of other major competitors.
Ok fair enough. each to their own
Thank you for the write up Wesley. Enjoyed reading it as always
No problem. Glad you liked this one