Bosses at the clothing and homeware chain Next are forecasting years of “anaemic” growth across the UK, with the retailer claiming that regulation, government spending and higher taxes will hurt jobs and productivity.
The FTSE 100 company, which is headed by the Conservative peer Simon Wolfson, said that while it did not believe the economy was heading towards a “cliff edge”, the weakening outlook gave the company “another reason to be cautious”.
“The medium- to long-term outlook for the UK economy does not look favourable,” the retailer said as it released its results for the six months to July.
The company, which sells its own-brand clothes and homeware alongside other brands’ products, and controls the UK distribution of the US brands Gap and Victoria’s Secret, said the rising tax burden and government spending commitments, among other factors, were putting pressure on businesses and restricting economic growth.
“At best we expect anaemic growth, with progress constrained by four factors: declining job opportunities, new regulation that erodes competitiveness, government spending commitments that are beyond its means, and a rising tax burden that undermines national productivity,” it said.
Shares in Next tumbled by as much as 6% on Thursday before recovering slightly, making it the biggest faller on the FTSE 100, despite unveiling a robust set of results.
The company said it benefited from warm weather in the spring and early summer, as well the disruption at its competitor Marks & Spencer following a major cyber-attack, as shoppers tended to buy fewer, better-quality items.
Job vacancies at Next have fallen by more than a third (35%) compared with two years ago as a result of better staff retention. Applications for roles have increased by 76% over the same period.
“We would like all our great people to stay with us for as long as possible, so to that extent it’s a good thing, but I think it is also indicative of the bigger picture which is the fall in vacancies across the UK,” Lord Wolfson told journalists.
He said the rise in use of automation and artificial intelligence would reduce costs and increase productivity across a range of industries but would also reduce the number of entry-level roles.
“My guess is that the effect is going to be felt most by those seeking to enter the workforce or move jobs, rather than those who are already in employment,” Wolfson said.
The company’s warning about the economic outlook came as it revealed that it would hand a further £99m to its shareholders via a dividend worth 87p a share. It reported a near 18% jump in half-year pre-tax profits to £509m, on a statutory basis, as sales in the six months to July rose by 10.3% to £3.3bn.
Next and its chief executive have been strong critics of the government’s decision to raise employers’ national insurance contributions in last year’s autumn budget.
Wolfson hit out on Thursday at the employment rights bill, which returned to the Commons this week and which is expected to ban zero-hours contracts, end fire-and-rehire practices and entitle workers to sick pay from their first day on the job.
He told reporters that the bill could prevent Next from offering extra hours to its part-time staff, including students and parents during the festive season and other busy periods, depending on how ministers define “low-hour” contracts.
“Hopefully the government will set the number at a reasonable level,” Wolfson said. “If they do, they will achieve their aims of eliminating the abuses of zero-hour contracts without having an adverse impact on flexible working. If that number is set too high, it will be bad for service and bad for employees.”
Despite the gloomy forecasts and share slide, analysts at the broker Peel Hunt said it was a strong six months for Next, with upgrades each quarter. “While Next has reservations on the underlying UK economy and the challenges facing retailers, there is also an increasing confidence on the group’s growth potential and execution,” they said.
