Next warns of slowdown on the high street

Two of the UK's biggest retail chains warned of faltering consumer demand in the second half of the year, as the Government's austerity measures start to take their toll.

Next, the fashion and homewares chain, said there had been a "noticeable cooling in retail demand" since early May. These comments contributed to 7.7 per cent being wiped off Next's market capitalisation yesterday, but shares in retailers including Marks & Spencer and Home Retail Group, the owner of Argos were also hit. The flooring firm Carpetright added it remained "cautious" about the outlook for consumer spending.

The comments from two of the sector's biggest chains will darken the mood in retail boardrooms, particularly as many of the measures, notably an increase in VAT to 20 per cent in January, unveiled by the Government in June, are yet to be felt by consumers.

Simon Wolfson, the chief executive of Next, said: "I think people are preparing for, and to some extent experiencing, tax rises or spending cuts from Government which are going to have a moderating effect on the economy. We are not looking at retail sales falling off a cliff, but it will moderate growth over the next two years."

Despite his warning, Next delivered like-for-like retail sales, including online, up by 1.7 per cent for the 26 weeks to 31 July. "Good cost control" led to its forecasting that group operating profit would be higher by 15 per cent in the first half.

The retailer's total sales rose by 3.1 per cent, which was boosted by sales at its 24 standalone Next Home stores being "significantly ahead of their target". Mr Wolfson added: "A lot of companies have exited the market, such as MFI, and there is an opportunity to pick up market share."

Sales at the Next Directory jumped by a better-than-expected 7.8 per cent. However, Next forecast that retail like-for-like sales would be down by between 1.5 per cent and 4.5 per cent for the second half.

In a further warning shot across the bows of consumers, the fashion retailer said it estimated raising the price of its spring and summer clothing ranges by between 5 per cent and 8 per cent next year.

Next and other fashion retailers face cost-price inflation from a combination of higher cotton prices, tightening capacity at factories overseas, and a lower dollar costing rate.

Mr Wolfson said: "The biggest single factor is the increase in the cost of fabric, driven by cotton prices. The capacity at factories in some regions is becoming constrained, which will make it harder for retailers to force through or expect manufacturers to swallow cotton prices. Capacity constraints will definitely help push price up a little." Shares in Next fell by 170p to 2,029p yesterday.

In the floor-covering sector, Carpetright, which also has stores in the Netherlands and Belgium, said that group sales were lower by 2.5 per cent for the 13 weeks to 31 July. However, the group's closure of its Polish operation accounted for about 0.6 per cent of this decline.

Lord Harris, the chairman and chief executive of Carpetright, which has 704 stores, said: "We remain cautious about the outlook for consumer spending for the balance of the year and, as a consequence, continue to manage the business by exerting tight cost control over all costs, capital expenditure, stock and cashflow."

In the UK and Republic of Ireland, Carpetright's underlying sales fell by 3.4 per cent.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

Day In a Page

Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones