Next said the recent warm weather had resulted in “disappointing” sales of its new autumn clothing ranges as the latest official data showed falling high street sales.
The retailer was the biggest faller on the FTSE 100 on Thursday after its chief executive, Simon Wolfson, painted a downbeat picture of current trading. The Conservative peer said that the malaise was down to the weather rather than Brexit woes as demand had been much stronger in parts of the country, such as Scotland, where it had been cooler.
“We believe that the warm start to September has done much more to hinder sales than the political temperature,” said Wolfson, a prominent leave supporter. “On a week when it is 24 or 25 degrees you are not going to sell a lot of knitwear.”
Next said there was no evidence that the economic uncertainty created by Brexit – which has hit sales of furniture and electrical goods – was affecting demand for its clothing, which was driven by need. “What affects the consumer is the day-to-day reality,” Wolfson said, adding: “If the weather turns cold I don’t think you will hear people say, ‘I’m not buying a jumper because of Brexit.’”
The absence of a new deal ahead of next month’s Brexit deadline has increased the risk of a disorderly exit from the trading bloc. While food retailers have expressed concern about the likelihood of price increases and even shortages in that scenario, Next said it would be able to cut clothing prices by around 2% due to import tax changes. Wolfson said that the government’s temporary tariff regime would reduce its import duty costs by around £25m – a saving it would aim to pass on to its customers.
Next’s shares were down by more than 5% on Thursday. It made a pre-tax profit of £320m on sales of £2bn in the six months to the end of July, with the 4% decline in full price sales at its high street stores offset by bumper growth of 12% at its home shopping arm.
In recent years there has been huge growth in the availability of “buy now, pay later” services such as Klarna which are aimed at younger shoppers. But Next, which has a large store card-style credit arm offering monthly payment plans, said it was reluctant to go down that route. Wolfson suggested the form of credit was “quite dangerous”, explaining: “There is a difference between spreading the cost and just deferring it. I’m not saying it’s a bad product. We have a very high bar for new [credit] products and we’re struggling with buy now pay later.”
The update came as the Office for National Statistics said retail sales volumes unexpectedly dropped 0.2% last month as Britons reined in their online spending. Economists had expected sales to be flat with the decline following July’s 0.4% rise. In the three months to August, retail sales rose 0.6%, the same growth rate as in the previous three months.
Non-store sales, which capture online and mail-order purchases, were down 3.2% after a 7.6% increase in July when many retailers offered promotions, led by Amazon’s prime day summer sale. Food stores notched up a 0.2% increase in August compared with the previous month, while department stores suffered a 1.3% drop in sales and clothes retailers’ sales slipped 0.1%. Household goods stores enjoyed 2% growth following a big fall the previous month.