If Deloitte & Touche is right in its forecasts for this year’s Christmas spending patterns, then Next will not exactly be rubbing its hands in glee.
Despite the buoyant economy, people seem to be bypassing the high street when it comes to spending their hard-earned cash and sales are predicted to rise by only 0.5 per cent on last year’s figures. In 1999 sales rose by 7 per cent.
So those of you dreading the Christmas shopping and New Year bills may have a pleasant surprise – pre-Christmas sales are widely expected, as are profit warnings in the first few weeks of the new year.
The fact that, according to Deloittes, clothing sales will be worst hit will certainly not come as good news to Next, which has so far managed to avoid the catastrophic drop in sales that has hit the likes of Marks & Spencer and C&A.
Next has managed to sail a relatively calm course since the early 1990s, when it offloaded many of its none-core businesses.
The high street chain was perhaps the archetypal success story of the 1980s. Having relaunched J Hepworth in 1985 as Next, the company grew to 770 stores just a year later. A period of rapid expansion followed as it acquired mail order company Grattan, retail chain Combined English Stores Group (which included Salisburys), and the Dillons-Preedy chain of newsagents. The company also launched its own catalogue, the Next Directory, in 1988.
The current chief executive David Jones was brought in following a boardroom coup in 1988. He proceeded to offload Salisburys, Dillons and Grattan and closed unprofitable stores.
The company now owns around 330 stores in the UK and Ireland, plus about 35 stores in Continental Europe, the Middle East and Asia through franchise agreements. The Next Directory accounts for nearly a quarter of sales and the company also owns Ventura, which provides call centre and customer support services for other companies.
Next’s head of legal is Peter Webber, who manages a team of five lawyers from the company headquarters in Enderby, near Leicester. And while Webber may keep a legal watch over hundreds of stores, he keeps his list of law firms short. “Simmons & Simmons and Eversheds are the only two big firms we use,” he says. “We also use a local firm in Milton Keynes called Kimbell & Co, simply because they are down the road. We used to use Edge Ellison, but we only use them occasionally now.”
Webber explains that this is because of a change in personnel on both sides of the relationship. He says: “Faces changed, and not just in terms of Edge Ellison. The operations director who used to use Edge Ellison left three years ago, which coincided with a couple of people leaving Edge Ellison, and our relationship disappeared. No one knew anybody anymore.”
Both Simmons and Eversheds are used, says Webber, for historical reasons. “In the case of Simmons, we came across them when they were acting on the other side of a big acquisition in the late 1980s,” he says. “We formed a working relationship with them which just moved on and on.”
The Eversheds link was through the national firm’s Leeds office, which was called Hepworth and Chadwick before being taken over by the Eversheds brand.
Next traces its origins back to 1981, when J Hepworth & Son Gentleman’s Tailors, a traditional men’s clothing chain established in Leeds in 1864, bought Kendalls, a dowdy 78-store women’s clothing chain. There was a family link between the clothing chain and Hepworth and Chadwick going back many years, and so it seemed natural that Eversheds in Leeds was chosen by Next. Webber admits it would now make more sense to use a branch of Eversheds nearer to where he is based, but insists that he has no intention of moving his loyalties, having already built up good relationships.
As for the Kimbells link, Webber met senior partner Stephen Kimbell on the opposite side of a deal in which Kimbell was acting for a large European client. “We got on well and found that we have the same approach to law,” says Webber. “Sometimes commercial requirements mean you have to cut corners and adopt the attitude that you have to do the deal as quickly as possible.” So Next has stayed in touch with Kimbells for smaller pieces of work.
A company of Next’s size and profile might be expected to regularly use the services of a magic circle firm, but Webber says he chooses not to. “We’ve used magic circle firms in the past, going back to the 1980s,” he says. “But we found that they were getting prohibitively expensive. Also, although we’d know someone at a magic circle firm particularly well, you’d find that when you gave the firm instructions someone else would deal with it, despite it only being due to this good relationship that you’d given them the work in the first place.
“I find them arm’s lengthish and a bit impersonal. We also had an unfortunate assay with one firm about a particularly quick deal. After the deal had been pushed through there was a fight about costs.”
Webber is sanguine about the dispute, saying that he should have fixed a price before the deal went ahead, but that the speed required meant there was no agreement over costs put in place. He refuses to name the firm involved.
Generally, Webber prefers to negotiate fees on an annual basis and then impose fixed fees. However, if he knows that there is a big job pending, then he sits down with the instructed law firm and draws up a global ballpark figure for how much he expects the work to cost.
“One thing about being in this job for a while is that you always have a feel for how much a job is worth, just as people do in private practice,” says Webber.
“But having said that, you can fix an hourly rate and multiply that by how long you think it will take and then think that the job’s not worth that much. On the other hand, some big deals can be comparatively simple.”
What Webber requires of a firm is the ability to put a team together to work with him on deals, as well as being a firm that is commercially astute. He says: “It’s amazing how many law firms don’t understand how a business works. If you ask them what your share price is or your market capitalisation, they wouldn’t have a clue.”
Webber believes that over the last five years around 80 per cent of the total workload has been kept in-house, with the exception of work emanating from Ventura, nearly all of which is sent out as the division does not have any in-house lawyers, although Webber’s team acts for it on occasion.
His team is divided into two property lawyers: one to act for the directory and to handle the product side of the business and another who handles employment matters as well as general work.
Practically all real estate work is kept in-house to keep costs down. “Outside costs are very expensive,” says Webber. “It’s always the same: when there are more jobs than lawyers the costs go up; when there are more lawyers than jobs the costs come down. There’s also a lot of work in real estate that tends to be repetitive.”
Webber himself deals with the corporate and commercial side and tends to use Simmons for the big pieces of M&A work and disposals – again mainly because of historical reasons, Simmons having had a London presence before Eversheds. Now that the latter firm has also opened in London, it, too, is being used by Next. One such deal is expected to be announced as The Lawyer goes to press.
For overseas work, Webber uses Baker & McKenzie in the Far East – although Next has now pared back its operations in the region – and uses Clifford Chance, particularly in Brussels. In the US he uses Boston firm Gadsby & Hannah and a Washington firm, although he is currently not at all sure what the name of the latter is.
“It seems almost every week I get an announcement saying they’ve changed their name again,” says Webber. “It wouldn’t surprise me if they were called Bastard & Co by now.”
In addition to the cost aspect of keeping work in-house, Webber believes that there is a “great comfort factor” for other people in the company in having lawyers that handle the work within the firm. “Sometimes it’s like running a surgery here,” laughs Webber.
He adds that people in other areas of the business are bringing the legal team in to help with decisions before any trouble hits. “However,” he cautions, “the way the department works within the company tends to be cyclical. About every two years you have to remind everyone to bring you in before the eleventh hour.”
Head of legal and company secretary
|FSTE 250 rating||11|
|Legal capability||Five in-house lawyers|
|Head of legal and company secretary||Peter Webber|
|Reporting to||Property director Andrew Varley, chief executive David Jones and finance director David Keans|
|Main location for lawyers||Leicester|
|Main law firms||Eversheds, Kimbell & Co and Simmons & Simmons|