The boss of the high street chain Next has said its clothing prices could rise by up to 5% next year after the pound collapsed in the wake of the Brexit vote.
Lord Wolfson said the cost of buying goods from abroad in sterling had jumped by 9% for next year’s fashions but that some of that hit would be mitigated as other currencies, such as the yuan, had also weakened against the dollar and it would also be able to secure better deals from suppliers.
“We’ve always taken the view that if our costs go up then our selling prices will go up and vice versa,” Wolfson said. “Although it is very early in the buying cycle, we currently estimate that cost prices in 2017/18 will rise by less than 5% on like-for-like products.”
Wolfson promised to give more details at its half-year results update next month as it would have “greater visibility” of the retailer’s spring and summer contracts.
The warning on prices came as Wolfson said trading would remain tough this year. In March, he predicted 2016 would be the most difficult since the financial crisis, pointing to weak consumer confidence and the trend for people spending spare cash on eating out and other leisure experiences rather than new clothes.
The Conservative peer, a prominent Vote Leave supporter, said he did not expect Thursday’s expected interest rate cut to make much difference to the UK’s cooling economy as the base rate was already so low.
The government could, however, boost the economy by tackling his bête noire, the country’s “slow” planning system, he said. The decision to delay the Hinkley Point nuclear plant had been a “sensible” one, he added, suggesting that investment in roads and aviation capacity, as well as energy reform, would be more productive.
In its trading update, the retailer said full-price sales edged up 0.3% in the three months to 30 July, an improvement on the 0.9% fall in the first quarter. The sales picture was “extremely volatile”, with big swings dictated by the weather rather than political upheaval as Britons bought summer clothes during shortlived hot spells. “The market is being driven by need,” said Wolfson. “If the sun comes out and you need summer clothes, people are buying them. This volatility is indicative of the underlying weakness of consumer demand for clothing.”
Nicla di Palma, analyst at Brewin Dolphin, said: “We do not think Next will be able to increase its selling prices due to the competitive situation in the UK clothing market and the weakness of the UK consumer. These results are reassuring, although there remains a big question mark on the strength of the consumer in the next few months.”
Next has cut its guidance for annual profit twice this year, blaming consumer caution, less enthusiasm for clothes shopping and bad weather in early spring. The outlook improved during the quarter and it revised its guidance to a 2.5% fall or rise in full-price sales. Pre-tax profits for the year would now be at least £775m, up from the £748m figure pencilled in in May. As a result, Next shares were among the biggest risers in the FTSE 100, closing up 4% at £53.40.
