Next blames 10% price rise on cost of cotton

INCREASES in cotton prices, VAT and labour rates are forcing the price of fashion lines up, with retailer Next expecting to increase prices by as much as 10% this year.

It said the rises could come in autumn and winter as cotton prices climb to record highs, while wage demands in the Far East have also increased.

The British retailer, which boasts a chain of more than 500 stores in Britain and Ireland, has implemented average price rises of around 6% on its spring and summer products.

Next posted the warning as it reported a 9% rise in pre-tax profits to €629 million (£551m) in the year ending January. The retailer said the increase was largely down to cost savings as it saw a 4% decrease in same-store retail sales and €25m (£22m) worth of lost sales due to the December snowfall.

However, the company’s online business Next Directory, which now accounts for 27% of sales and 40% of profits, saw a 12.3% increase in customers to 2.7 million.

Next chief executive Simon Wolfson said things are expected to get worse before they get better.

“Retailing will feel like walking up the down escalator; we will have to work hard to stand still. It seems likely that recent worldwide inflation in fuel, food and other essential commodities will further add to the financial pressure on the consumer. Retail isgoing to be different over the next few years.”

He added that Next still faced a tough trading environment, with 2011 likely to be even tougher than 2010.

Commenting on the price hike, Graeme Harrison, an adviser to Ernst & Young, said it is likely that other fashion retailers will have to follow suit.

“Price increases are the last thing that retailers want to do, given the current environment, but I can’t see how they will be able to continue without doing so. If other retailers don’t follow suit, Next could be in trouble because customers may decide to shop elsewhere,” he said.