Next will not escape the slowdown, chief admits

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The Independent Online

Next's chief executive, Simon Wolfson, warned yesterday that 2008 would be difficult and said there was "no silver bullet" that would allow the retailer to escape a downturn on the high street.

"The year ahead is looking tough for the whole corporate sector due to the pressures on the consumer with mounting household costs, rising petrol prices and taxes," he said. "One of the easiest places to cut back on is clothing."

Next customers were being particularly affected by higher interest rates and bills as they tended to fall into the 25 to 45 age category, owned their own homes rather than rented, and owned cars, he said.

Although Mr Wolfson would not be drawn on the Chancellor Alistair Darling's Budget and how it may affect the consumer, he did criticise the Government's proposals to charge people 5p for plastic bags. "It is an unnecessary increase in consumer costs when an increase in costs is the last thing the consumer needs," he said.

Despite the tough retail environment, Mr Wolfson said he was happy with Next's achievements over the past year, with improved product and store refits.

Mr Wolfson said Next customers were buying fewer items of clothing but were choosing quality and paying more for them as borne out by the initial signs of success at its recently launched higher-end Signature range, which accounts for 3 per cent of sales.

He added that the retailer intends to keep its marketing spend at the same level as last year, which was £18m higher than the previous year, and keep a higher profile with three television advertisements in the financial year.

The group reported a 4.1 per cent rise in pre-tax profits to £498m in the year to the end of January, with group revenue up 1.4 per cent to £3.3bn. Like-for-like sales at Next stores are expected to fall bet-ween 4 and 7 per cent this year, the company said. Shares in Next fell 6 per cent yesterday.

Richard Hunter, head of UK Equities at Hargreaves Lansdown stockbrokers, said: "It seems that even though full-year profits were in line with expectations, this is largely due to cost control rather than an increase in sales. It is the underlying trends, along with the company's cautious comments, which have provided little scope for optimism."

Next recently opened two stores in China through a joint venture partnership and Mr Wolfson said he might open a further five to ten stores, though he warned it was too early to asses whether the business would take off. "It's an experiment," he said. "It may work, it may not work."