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What’s Next? Higher Prices, According to This 700-Store Retailer

Prices are going up at Next Plc.

The 700-store British fashion chain cited stubbornly high freight costs as one of the main factors behind its decision to increase product prices in the spring and in the fall. The Leicester-based retailer also pointed to nationwide wage inflation as a culprit and said “further increases in manufacturing costs” played a role in the two-step price-hike plan.

Next on Thursday said spring and summer products will cost 3.7 percent more than comparable items the year before, while items arriving for the fall/winter season will be priced 6 percent higher than prior-year products. “We expect our total average selling prices to increase by more than the like-for-like price increases,” it said, suggesting that consumers are “choosing to buy slightly fewer items, but at moderately higher price points—perhaps exchanging volume for quality.”

The Gap joint venture partner expects a 4.6 percent increase in profit before taxes to 860 million pounds ($1.16 billion) for the year ending January 2022, representing 6.5 percent compound annual growth from 2019.

Though it projects 7 percent sales growth through January 2023, “forecasting sales for the year ahead is unusually difficult and the buoyancy of recent months makes it all the harder,” the Victoria’s Secret UK JV schemer warned.

Next is keeping an eye on the many issues that could challenge retail this year, like whether rising inflation will kill demand for its discretionary products. It’s also hoping to understand if pandemic-era savings was a factor in buoying sales, and if so, whether that will continue in the months ahead. If leisure travel rebounds, vacationing consumers resuming their social agendas might have less money to spend on goods like fashion. And increasing inflation could force consumers to pay more for basics like food and fuel, which could leave less leftover for investments in their wardrobes and abodes. A planned 1.25 percent increase in British national insurance might also threaten consumers’ ability to spend freely on nice-to-have items.

“Clear answers to these questions are impossible at this stage but they all point to a tougher environment as we move through next year,” Next said.

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However, for the financial year ending in January 2022, the company raised full-year sales guidance after stronger formal and occasion wear sales sparked unexpectedly higher fourth-quarter revenue growth.

“We were expecting sales growth in Q4 to be weaker than Q3, however, a strong revival in Next branded adult formal and occasion wear significantly improved sales throughout the final period,” it said.

Full-price sales in the eight weeks to Dec. 25 rose 20 percent over two years ago, Next said, or 70 million pounds ($94.7 million) ahead of its prior guidance. Based on sales results, the company raised its full year profit before tax guidance for Fiscal Year 2022 ending January 2022 by 22 million pounds ($29.8 million) to 822 million pounds ($1.11 billion), or up 9.8 percent from two years ago. It guided full-price sales to 4.3 billion pounds ($5.82 billion), or up 12.8 percent against 2019-2020 figures.

Next said it had less inventory to promote in its end-of-season sale, which was down 18 percent versus two years ago and reflected CEO Lord Wolfson’s October warning that supply chain problems had sent stock levels down 12 percent from two years ago.

“The reduction in sale stock was mainly the result of better-than-expected full-price sales in the period,” it added. “Clearance rates, so far, have been in line with our expectations.”

Traffic talk

Though Next is optimistic about the year ahead, Omicron’s impact already has Britain’s retail sector on high alert.

“Much of the progress made over the last four months was wiped out in December as surging Omicron cases and new work-from-home advice deterred many from shopping in-store, particularly in towns and city centers,” Helen Dickinson, chief executive of the British Retail Consortium, said Friday amid news that December’s nationwide footfall plunged 18.6 percent from two years ago, based on Sensomatic data.

“As case numbers rose precipitously, many people chose to limit social mixing in the run up to Christmas and shop less frequently,” she added. “Nevertheless, while UK footfall saw a moderate decline compared to previous months, it remained above levels of other major European economies, as the country avoided some of the more severe restrictions implemented elsewhere.”

For now, Dickinson said, “time will tell if shoppers return to their local high streets to embrace January sales and the arrival of spring collections. Still, retailers may have to work twice as hard to tempt many consumers back into the cold this January.”

Meanwhile, Springboard’s data shows that last week’s foot traffic in the UK was down 6 percent from the prior week, reflecting Omicon’s continued impact. However, Diane Wehrle, insights director for the retail intelligence firm, said the numbers suggest a “familiar result in the first week of the year” when many consumers are typically returning to work from holiday breaks.

“However, the drop only occurred in high streets and shopping centers, whilst in retail parks footfall rose marginally from the week before which in part will have been driven by households replenishing groceries and household products,” she continued. “High streets bore the brunt of the drop in shopper activity, with the decline from the New Year week more than twice that in shopping centers, although to some degree shopping center footfall may have been insulated by the great Christmas present return.”