Business

Next warns on low-growth future

  • 15 September 2010
  • From the section Business
Next store
The chain is not expecting a "meltdown" in consumer demand

High Street retailer Next has warned that it is expecting at least three to five years of low sales growth - as customers remain reluctant to spend.

In a statement to the City, the firm said this muted retail environment should be seen as "the new normal".

Its comments came as it reported a 15% rise in half-year profits to £213m, with sales up 5% to £1.59bn.

Next also reiterated that higher cotton prices may lead to customers having to pay more for clothes.

The fashion retailer did, however, make significant gains in the FTSE 100 after announcing the substantial rise in pre-tax profit, which saw its share price rise by 4.9%.

The news appeared to lift sentiment in other major retailers, with Kingfisher and Marks and Spencer also rising by more than 2%.

'Sober assessment'

The retailer said it did not anticipate a double-dip recession in the UK nor a meltdown in consumer spending.

But it said the impact of public spending cuts and fall in the credit availability would be felt.

"Very little by way of growth in total consumer spending for the foreseeable future" was expected, Next said.

BBC business editor Robert Peston said that Next's "sober assessment" would be taken notice of by the government, "partly because it is a respected business and partly because Next's chief executive [Simon Wolfson] is a Tory peer and close to the prime minister and chancellor".

Cotton impact

For the six months to the end of July, Next's High Street sales were towards the lower end of previous guidance, but the Next Directory home shopping business produced a better-than-expected performance, with a 7.8% rise in first-half sales.

The firm said that the real opportunities it saw for growth were through its website and catalogue and by opening new shops focussing on homeware and furniture.

In its statement, Next reiterated that higher cotton prices will mean that clothes will become more expensive.

Devastating floods in Pakistan - one of the world's largest cotton producers - and fears over this year's crop in China have sent cotton prices surging to 15-year highs in recent weeks.

Next said cotton prices were 45% higher than this time last year, and that this, along with the planned VAT rise, meant price rises were "inevitable" in the spring of next year - predicting increases of between 5% and 8%.

On Tuesday, department store Debenhams warned that the entire UK clothes retail industry faced higher prices, because of the rising cost of cotton and the weak pound.

Primark has also said that rising costs may eat into its profit margins over the coming year.

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