The chain is not expecting a “meltdown” in consumer demand Next has become the latest retailer to say higher cotton prices may lead to customers paying more for clothes.
Devastating floods in Pakistan – one of the world’s largest cotton producers – and fears over this year’s crop in China have sent cotton prices surging to 15-year highs in recent weeks.
However, Next said it did not expect the impact on sales to be dramatic.
The comments came as it announced its pre-tax profit in the six months to the end of July had risen by 15% to £213m.
“Over the long term Next expects its own revenues will be a fraction of the kind of increases that it and other retailers enjoyed in the boom years up to 2007”
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Sales were up by 5% to £1.59bn in the same period.
High street sales were towards the lower end of Next’s previous guidance, but the Next Directory home shopping business produced a better-than-expected performance, with a 7.8% rise in first half sales.
The retailer said that while it expected it did not anticipate a double-dip recession in the UK nor a meltdown in consumer spending.
But it added it expected “very little by way of growth in total consumer spending for the foreseeable future” because of the impact of public spending cuts and fall in the credit that consumers can borrowing to finance their lifestyles.
BBC business editor Robert Peston said that Next’s “sober assessment” would be taken notice of by the government, “partly because it is a respected business and partly because Next’s chief executive [Simon Wolfson] is a Tory peer and close to the prime minister and chancellor”.
Next said cotton prices were 45% higher than this time last year, and that this. along with the planned VAT rise, meant price rises were “inevitable” in the spring of next year – predicting increases of between 5% and 8%.
On Tuesday, department store Debenhams warned that the entire UK clothes retail industry faced higher prices, thanks to the rising cost of cotton and the weak pound.
Primark has also said that rising costs may eat into its profit margins over the coming year.
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