Retail sales slump again - but record profits for Next

With high street sales falling 0.8% in February, even reliable profit makers like Next are warning of troubled times ahead...

by Emma Haslett
Last Updated: 06 Nov 2012
The latest retail sales figures dispel any doubt about how difficult life is on the high street at the moment: the Office for National Statistics reports a 0.8% decline in February, well down on 1.9% hike in January and even worse than the City expected. There are some retailers who seem to be making the best of a bad job: Next, for example, said today that it made record profits of £551m last year, up from £505m in 2009. But it’s interesting to note that it achieved this partly through price hikes – and since this pattern seems to be evident across the sector, that’s going to make us all feel a bit poorer. No wonder CEO Lord Wolfson is sounding cautious…

The Next boss says the rising price of cotton has hit the industry hard in recent months, forcing Next to push up its prices by 6%. What’s more, if futures prices are anything to go by, he reckons the prices of the retailer’s autumn/winter collection could be up to 10% higher than expected. With customers already feeling the impact of high inflation, tax hikes and spending cuts, that’s not the best timing.

The good news, says Lord Wolfson (Simon to his friends) is that the price of cotton should begin to come down towards the end of this year. That would be a relief for the whole economy. Higher clothing and footwear prices were among the biggest reasons for the latest rise in CPI inflation – which is currently running at 4.4%, more than double its official target. Indeed, the ONS said today that non-fuel retailers had increased prices by an average of 2.4% in February, to reflect higher VAT and commodity prices.

Wolfson has long been cautious about the outlook for this year. Back in September, he warned that high street spending was likely to stay muted for the foreseeable future as people seek to ‘rebuild their personal balance sheets’; in other words, we’ll be concentrating on paying off debt, rather than ramping it up by splashing out on clothes that we really like but don’t really need. All very sensible – but not great for retailers.

Clearly the whole high street is feeling the squeeze at the moment, even solid performers like Next and (yesterday) Sainsbury’s. As Wolfson says, conditions across the retail sector over the next few months are likely to ‘feel like walking up the down escalator… We will have to work hard to stand still’.

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