Thursday 19 January 2017

Brexit backer warns of higher clothes prices at Next due to sterling slump

Holly Williams

Published 04/08/2016 | 02:30

A model in a Next autumn/winter outfit. Chief executive Simon Wolfson warns of higher prices being charged by suppliers
A model in a Next autumn/winter outfit. Chief executive Simon Wolfson warns of higher prices being charged by suppliers

Fashion retail giant Next warned it may have to hike prices in the face of soaring costs after the pound has plunged in value since the Brexit vote.

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Chief executive Simon Wolfson said the group may be forced to put up price tags next year, but said any rise was likely to be "less than 5pc".

Next estimated that importing clothes from overseas suppliers will raise costs in the year to the end of January 2018 by up to 5pc.

The comments came as Next posted another fall in full-price sales at its main street stores - down 3.3pc for its retail shops in the second quarter to the end of July, while its Next Directory arm saw sales rise 5.7pc.

But the drop was not as bad as feared, while a robust end-of-season sale performance also helped limit the fall in total store sales, including markdowns, to 0.7pc.

Mr Wolfson - who backed the Brexit campaign - said there was no clear evidence of a hit to consumer confidence since the vote to leave the EU, although he cautioned trading conditions will remain tough for the rest of the year.

He said: "We've seen evidence of a consumer slowdown since October.

"The Brexit vote hasn't really altered consumer confidence one way or the other - the consumer environment was tough before the vote and remains tough," he added.

The group is expecting sales falls to worsen in a "particularly challenging" third quarter as it also comes up against tough comparisons from a year earlier, although the all-important Christmas season may see some improvement after mild weather hit the end of 2015/2016.

Next said it had been able to protect itself against falls in the value of the pound for the current year to January 2017, but that its input costs could rise by around 9pc for the next financial year.

It is hoping to offset much of this, partly by increasing product buying from areas such as Bangladesh, Cambodia and Burma, while improved sourcing in China may also help.

But the group warned its costs will nevertheless rise by up to 5pc for 2017/18 even after taking action to limit the impact.

"If you see increases in cost prices, then it will translate into higher selling prices," Mr Wolfson said

Next was forced to put up its price tags by around 8pc in 2010 when the pound plunged against the US dollar, sending the price of cotton surging.

Shares in the group rose 4pc on the better-than-feared second quarter performance, which marks an improvement on the 4.7pc plunge it saw in its high street stores in the previous three months.

The stock was also buoyed as Next said the worst-case scenario for annual profits was now not as bad as expected, pencilling in a range of £775m to £845m.

This would mean profits could fall by up to 5.6pc or rise by as much as 2.9pc. It had previously warned that profits could tumble by up to 8.9pc. Next narrowed its forecast for full-price sales, which it said would be in the range of 2.5pc lower to 2.5pc higher, from a previous range of 3.5pc lower to 3.5pc higher.

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