Debenhams upbeat on sales despite price fears
Wednesday 15 September 2010
Debenhams downplayed retail sector concerns that the spike in cotton prices will translate into inflation in clothing prices and a dip in sales yesterday. Flooding in Pakistan and China has sent global cotton prices soaring to a 15-year high in recent weeks, as retailers already face higher transport costs, wage inflation in China and rising VAT in the UK.
But Debenhams' chief executive Rob Templeman says that the chain store does not expect to see a knock-on effect from cotton prices on its clothing sales, despite forecasts from Verdict Research that clothing inflation could hit as much as 4.4 per cent in Britain this year.
Debenhams expects prices to start to come down again, thanks to a strong harvest in India, the world's second biggest producer, and also stressed that it has hedging in place to ameliorate sudden price spikes.
Mr Templeman's optimistic stance contradicts concerns elsewhere in the retail sector. Last month, the clothing chain Next warned that prices could rise by as much a 8 per cent next year. And on Monday, Associated British Foods, which owns the budget clothing retailer Primark, warned its profit margins faced a squeeze from ballooning cotton costs. But Mr Templeman said Debenhams is less exposed than Primark. "The increase in cotton translates at the lower end of the market to a bigger price increase to the consumer," he said.
Fairtrade campaigners also yesterday poured cold water on claims that current soaring cotton prices spell the end of cheap clothes. Toby Quantrill, the head of policy at the Fairtrade Foundation, said: "Adjusting for inflation, the real story of cotton is that its price is just one third of its value in 1970, which has compounded rural poverty in southern hemisphere cotton growing countries."
Debenhams' comments on cotton prices came alongside interim results showing flat like-for-like sales compared with the previous 12 months – a short- term hit from the group's strategy to convert in-store concessions back to Debenhams' "own-bought" stock, the company said.
In full results to be published next month, Debenhams is forecasting pre-tax profits in the region of £150m, about 20 per cent higher than last year, and margins were up by substantially more than one percentage point over the period.
The group said growth in online sales and in overseas markets will help it weather tough times ahead as the Government spending cuts due to be announced next month drag down consumer confidence. Strong designer brands will also play a key role, Mr Templeman said.
Debenhams' shares closed up 3.4 per cent at 67.2p.
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