Prices up, demand down: Next paints gloomy picture of our prospects

Next takes a pounding after suggesting that consumer demand is slowing - and price hikes are looming.

by
Last Updated: 06 Nov 2012

A fairly gloomy trading update from Next today: like-for-like sales fell 1.5% in the first half of the year. Apparently things got noticeably worse during the second quarter, and it reckons this trend will continue for the rest of this year: it says sales could be down 4.5% in the second half, as customers become increasingly careful with their cash. Worse still, it thinks it may have to hike its prices next year (just as the VAT hike kicks in) because of higher input costs, which isn’t exactly going to help matters. No wonder its share price is down, then. Ad since Next is seen as a bellwether for consumer demand, it doesn’t bode well for UK plc as a whole…

In an update ahead its results next month, Next said there had been ‘a noticeable cooling in retail demand in recent months’, suggesting the prevailing mood among customers was ‘best characterised as cautious’. And as the Coalition’s austerity measures - i.e. spending cuts and tax hikes – kick in, that’s going to cramp our spending style even further. As a result, it thinks like-for-likes will be down somewhere between 1.5% and 4.5% in the second half.

Now admittedly Next has a reputation in the City for fairly pessimistic forecasts at the best of times (thus handily allowing for a share price jump when it corrects upwards). But the retailer says that although ‘this might sound overly cautious’, it’s actually perfectly reasonable when you consider that hiking VAT back to 17.5% has taken a big chunk out of its bottom line this year. The  market certainly bought it, anyway: Next was the biggest faller on the FTSE 100 today, down 7%.

The other bad news was that Next thinks higher cotton prices (along with currency movements and so on) will ramp up its input costs in 2011. Throw in the VAT hike, and it seems almost certain that we’ll be paying more for our jumpers, tops and easy iron shirts next year. If anything, this is likely to suppress demand even further.

Incidentally, Next also insisted that its full-year profits would be in the region of £535m to £565m – a perfectly respectable number (it would be between 6% and 11% up on last year), and perfectly in line with its previous guidance. But not surprisingly, people weren't really focusing on this bit of the update.

In today's bulletin:
Lloyds smashes forecasts with £1.6bn profit - but challenges remain
Prices up, demand down: Next paints gloomy picture of our prospects
ASA rumbles BT over its big bang ad
Profits improve for ITV as Crozier announces HD deal
Letters from Malawi: The downside of mobile phones

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