Next boss promises no further price rises as cotton costs fall
Published 14/09/2011 | 09:08
The boss of British and Irish High street clothing chain Next today offered reassurance that prices will not rise further in 2012 after a "perfect storm" of surging costs and rising VAT increased price tags this year.
The retailer, which has more than 500 stores in the UK and Ireland, hiked average selling prices by 7pc in the six months to July 31 as soaring cotton and oil costs added to the VAT hike to 20pc in January.
Next expects selling prices to increase 8pc in the second half of the year but chief executive Lord Simon Wolfson said there will not be further rises in the first half of 2012 as the cotton cost bubble has burst, with prices falling 50pc below their March peak.
The reassurance came as Next reported a 1.8% drop in store sales, which was offset by a 15.1pc increase at its online business Next Directory. The company posted an 8.5pc increase in half-year pre-tax profits to £228m after revenues grew 3.6pc to £1.6 bn.
Next said it did not expect an easing in headwinds in 2012, although with little or no inflation in its prices, consumer sentiment should benefit.
David Keens, group finance director, said it "takes time" for drops in raw material costs to filter through to the customer and it was too early to say if selling prices would actually drop.
"Even if cotton prices come off a little bit further, the cost of manufacturing costs - that is the cost of labour - is going up," he said. "It's too early to say."
Mr Keens said the sales figures showed customers were moving to shopping online, helped by its new deadline for next-day delivery of 9pm.
He said: "Our total sales have grown more than 3%, which we think is a good performance and is above the range we expected at the start of the year."
Mr Keens said womenswear had driven sales growth, which had a strong bearing on childrenswear sales as well.
Home sales have struggled, in line with the market, with big-ticket items such as beds, wardrobes and fitted kitchens suffering in the current climate.
But Mr Keens said the group still saw Home as a strong area for growth and is taking new space in the hope the market will improve.
The group plans to increase retail space by 400,000 sq ft in the current year and expects to add another 400,000 sq ft in the following financial year.
Next will continue to work with former Spice Girl Geri Halliwell, who has promoted her own swimwear collection with particular focus on the Next Directory business.
A new TV campaign, which will not feature any celebrities, will launch this autumn, Mr Keens said.
Next saw its shares increase 5pc after the interim results were published.
Kate Calvert, a retail analyst at Seymour Pierce, said there were no surprises from the numbers and the encouraging tone from the management will be well received by the market.