Fashion retailer Next will invest in a £30m automated storage-and-retrieval-system (ASRS - pictured) for customer returns and a £15m project expanding forward picking areas for boxed stock as part of an ambitious £200m four-year investment programme to develop its existing warehouses.
The company is choosing to invest in its distribution functionality as a result of a growth in online sales putting strain in its warehouse capacity. In its half year results statement to July 2018, the company said: “Whilst we have been able to operate effectively and maintain service levels, the operation of these warehouses at or near capacity has increased our operating costs.”
Next’s warehousing infrastructure is modular, spreading across five sites. This can be extended piece by piece and does not require any significant step change in annual capital expenditure. Regarding the investment programme, it said: “We do not need to commit to all this capital expenditure at this time, so if sales growth does not materialise we will be able to defer or cancel much of this planned investment. We are currently committed to £70m (35%) of the programme.”
The investment programme could expand Next’s online sales unit capacity by 75%, allowing it to increase annual online sales by as much as £1.5bn. Next detailed its projections: “The £200m investment gives a clear indication of the capital costs of future Online growth. The numbers imply we will need to invest 13p (£200m ÷ £1.5bn) for every £1 of additional annual sales capacity. The depreciation on warehouse equipment averages 12 years, so depreciation would be around 1.1% (13p ÷ (£1 X 12 years)). Our current rate of warehouse depreciation is 0.8% so we do not anticipate that the new investment will have a material impact on the net margins of the business.”
The investment the retailer plans in warehousing and logistics is likely to be offset by a reduction in the amount they invest in opening new retail space, it said.