Next Directory was great in its time - but now time is leaving it behind

Simon Wolfson’s forebears would be proud of the success of Next Directory. Isaac and Leonard Wolfson’s Great Universal Stores empire did catalogue retailing on an epic scale, at one stage counting a quarter of the British public as customers. The formula worked equally well, if not better, at Next – where the slick warehousing and delivery system that made catalogues tick worked seamlessly with online retail too.

The result: Next’s internet operation was the first and best of the big players on the block, and has been ahead of its peers for much of the past decade.

Inevitably, that couldn’t last for ever. The last few sets of financial results have shown rivals, even the sluggish Marks & Spencer, finally accelerating in Next’s online wake. The result: core UK sales at full price in the online and directories division have grown by just 2.3 per cent in the past year.

Part of that was due to a rare slip-up in Next’s buying department (there wasn’t enough mid-season stock). But the main issue is that this has turned from an exciting, disruptive web player into a mature business in a market that’s now as cut-throat as the high street.

Also, far fewer customers are paying for their purchases with Next’s lucrative credit scheme. As recently as five years ago, 95 per cent of online and directory orders were made with a Next credit account. Last year that figure was 84 per cent, with a further 5 per cent fall expected this year.

Lord Wolfson is investing in Next’s technology and moving overseas in search of growth. That’s the right action, but he faces an exhausting struggle just to stand still. On Thursday, he diverted the headline writers from all this by talking up the consumer’s doom and gloom. Don’t be fooled – it’s Next that’s the problem here, not the economy.

Perhaps good governance matters to Schroders after all. OK, it may have just flouted the rules and enraged shareholders by promoting its chief executive to chairman, but at least it’s now going to rotate its auditor, PwC, after more than 50 years.

Since Arthur Andersen’s failure to curb the excesses of Enron, companies are expected to change auditors regularly to stop them becoming too complacent about, or corrupted by, their clients.

Schroders is way behind most big companies, which did this long ago, but it hasn’t been for lack of trying.

In 2012 it held a beauty parade, in which KPMG won. But at the last minute, the auditor pulled out due to conflicts of interest with other lucrative services that it was selling to the company. Instead PwC was quietly reappointed, easing into its fifth decade watching over the books. To make matters worse, Schroders then hired its former auditor from PwC, Richard Keers, to be its finance director, admittedly after an obligatory cooling-off period.

Schroders has perhaps less need than other Footsie plcs to comply narrowly with the rules on corporate governance. After all, of the shareholders such regulations are there to protect, the biggest is the Schroder family, which still has two members on the board. Normal rules don’t apply.

They soon will, though. Under sensible EU directives that come into force this year, it has until 2020 to replace PwC. Given that it’s four years since Schroders’ last effort, if it really gets its skates on then it should just squeeze under the wire.

Being Good Friday, it’s fitting to adopt Jesus’s parable of the talents.

It has always seemed a squandering of Britain’s capital that so many chief executives now return “surplus” cash to shareholders in share buybacks, rather than investing it in their businesses. We investors pay these bosses large sums to deploy our money profitably; simply giving it back to us is as much a crime against capitalism as the lazy servant burying his talent in the ground.

On Thursday, the shareholder advisory group Pirc declared war on the talent buriers, declaring they should only carry out share buybacks if they explain clearly why. In other words, the norm should be to invest in their businesses, boosting productivity and helping the economy – just like the two good servants in the parable.

Buybacks, Pirc claims, are largely done because if you buy and cancel shares, it makes the value of the remaining ones go up – making it easier for bosses to hit their bonus targets. This may be true, but more significant is their fear of taking risks. An investment could go wrong, they tremble; far safer to bury it in the ground and hand it back when the master returns.

But returning too much cash to shareholders can be risky in itself.

Take GlaxoSmithKline, where the retiring chief executive Sir Andrew Witty has long been on the buyback trail. Cashflow from the drugmaker’s operations was fairly similar in the decade before he took over to the eight years after, but the percentage he handed back to shareholders surged.

From an average where the company’s cashflow was 2.4 times what it gave back, Sir Andrew went to just 1.6 times. And 2015’s handbacks to shareholders were actually greater than the company’s cashflow.

That’s not just burying your talents, it’s shovelling them into quicksand.

Not the best foundation for a healthy business.