No more years of plenty, warns Next boss Wolfson

Lower sales growth will become 'the new normal' for big retailers, according to Next CEO Lord Wolfson.

by Emma Haslett
Last Updated: 12 May 2015
The last couple of years have been a hard slog for the high street, but there seemed to be signs that things were perking up. Not so, says Next chief exec Lord Simon Wolfson, who this morning doused any suggestions that retailers will enjoy a steady recovery in the next few years. He may have a point: with customers less inclined to fritter away money they haven't got (voluntarily or otherwise), high street spending is unlikely to grow at the same rate as it did in the boom years. Equally, retailers are already seeing higher raw material costs - so although Next has just reported a 15% half-year profit hike, it may be the last time in a while...

At first glance, it seems like a strange time for Wolfson to be making comments like this. Next has just issued pretty good half-year results, with a 15% rise in profits and a 5% jump in sales to £1.59bn. Lots of retailers would kill for numbers like these. However, Tory peer Wolfson reckons that 'the necessary reduction in the Government deficit' will take money out of the economy, while consumer efforts 'to rebuild their personal balance sheets' - partly enforced by the banks - will mean that people won't be buying stuff on tick in the way they used to in the good old days. (OK, so it may have been bad for the economy, but it was great for retailers selling stuff that people don't really need).

But that’s not the only issue facing Next. Like Associated British Foods yesterday, Next warned that soaring cotton prices - which are apparently 45% up on this time last year - would squeeze its margins. Coupled with wage inflation in China (and the shrinking number of available manufacturers), this will probably mean a general increase in the price of clothes for the first time in 15 years – possibly by as much as 8%. ‘We just don’t know how [that's] going to affect the consumer,’ said Wolfson.

All things considered, he reckons this means retailers will have to adapt to 'a new type of consumer environment', where like-for-like sales growth is low 'for some time', and top-line growth will need to come from ‘other opportunities’. That’ll be a strategic challenge for our biggest chains

As you might expect from a newly-ennobled Tory peer, he wasn't too critical of the Government: he insists the imminent cuts won't lead us into a double-dip. But he did suggest they might ‘subdue any potential growth in consumer spending’ - relatively strong words for a man who's presumably got both David Cameron and George Osborne on his speed-dial. Still, he has a vested interest here: if retailers are set to face tougher times, he doesn't want his chums in the Treasury making life any more difficult. Although if he's hoping they might repeal next year's VAT rise, he probably shouldn't hold his breath.

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