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Birmingham Post
Birmingham Post
Business
Tom Pegden

Big Interview: Next CEO Simon Wolfson gearing up for 'much tougher year' ahead

Six months ago Next chief executive Simon Wolfson spoke to the media as the country began to emerge from Covid.

Back then the retailer was adapting to the new normal while dealing with warehouse and general HGV driver shortages – partly caused by Brexit – and rising international freight costs as the global economy built up again.

Next, he said, was doing well, with online sales in particular looking positive and lots of pent-up demand among shoppers to spend money saved during lockdown.

Now, with war raging in Eastern Europe and inflation rising at an eye-watering rate, there are new issues for the boss of Next to address.

First and foremost it is winding down a distribution site in Russia and has pulled online operations from Russia and Ukraine. That will cost £85 million in sales over the next year and cut profits by £18 million – largely offset by better margins at home.

He said the next 12 months would be even tougher than the last, with average sales prices expected to rise from the current rate of 3.7 per cent up to between six and eight per cent in the second half of the year. The cost of Next homeware and furniture in particular, he said, is expected to go up by 13 per cent.

Speaking to the press on the back of the company’s annual results, Lord Wolfson said: “As we go into the next year we’re really into a very different consumer environment and in many ways the strong comparatives from last year make the year ahead even tougher.

“That said, in terms of guidance, the only change really is the closure of our Russian and Ukrainian websites.

“Our performance in the UK is slightly ahead of where we expected it to be in our January forecast. I wouldn’t want people to think that means the UK is strong – it is slightly ahead of where we expected it to be which was a slightly muted consumer environment.

“We anticipate that our online business will continue to grow in the UK at around four to five per cent and our retail business will decline by around seven per cent. Our original expectations were that retail would be worse and online would be slightly better.”

The best case scenario was that inflation might start easing by the end of the year, he said, but nothing was guaranteed.

One thing still affecting the business, he said, was worker shortages.

In its annual results yesterday Next, which is headquartered in Enderby, Leicestershire, said it was disappointed that Government had done “little or nothing” to increase the underlying supply of goods, energy and skilled workers.

It said: “The good news is that there is much the Government can do to increase supply.

“It can reverse the self-defeating barriers it has placed on overseas workers supporting our economy and accelerate, simplify and reform the planning process to increase the supply of desperately needed housing.”

Lord Wolfson, who backed Brexit, added: “The Government can stop preventing the skills and people the country desperately needs from coming here to work.

“So there are things the Government can do on the supply side and we hope they can do them, but there’s yet to be any evidence that they will do.”

He said that, while inflation would continue to put a pinch on consumer spending, working out what would happen next on the high street and in internet sales was a big ask of anyone.

He said: “I think people think that, as a retailer, we have some sort of insight into how inflation, energy and inflation in our own prices are all going to impact on consumer spending and we don’t.

“The variables that we are looking at and the uncertainties in the year ahead are not ones that we have any experience of over the last 20 or 30 years.

“Our [growth] estimate for the rest of the year as a group is about one per cent up. There’s nothing we’ve seen so far that would suggest that number isn’t right but it is a combination of our experience and intuition – there’s no particular science behind it because science requires history and we don’t have the history to give us a guide.

“We’ve never seen anything like this before. We don’t know how it’s going to pan out.”

Results for the year to January showed Next’s pre-tax profits up 140 per cent to £823 million, compared with the previous year – which was heavily impacted by Covid - and ten per cent above pre-pandemic levels.

Total sales for the year were up 11.5 per cent at almost £4.862 billion.

The chief executive – the longest-serving CEO in a FTSE 100 firm, who at the age of just 54 said he has no plans to go anywhere – said inflationary pressure would eventually diminish as pressure on freight capacity started to improve.

He said: “What I think we will see next January, February, March is a significant reduction in pressure on the world’s freight capacity.

“We suspect that, at some point over the next six to 18 months, we will begin to see an easing in pressure in prices.

“If we see a consumer downturn we will then see an easing of pressure on manufacturing capacity but that will take about nine months to filter through to factory gate prices.

“I think best case scenario is that we’re looking at an easing of pressure in nine to 12 months’ time.

“We are facing unprecedented times but we have anticipated a much more subdued consumer environment and what we are seeing so far in the UK is slightly better than what we’ve anticipated.

“You shouldn’t read too much into that because the cost of living pressures will increase through the year.

“So, while we are expecting a difficult year, I wouldn’t want to exaggerate the difficulty and I think the finances of the business are in a state where whatever is thrown at us we have the margins and financial ability to cope with it.

“While we are sanguine about the outlook, we are no more sanguine than we were in January other than the closure of our Ukraine and our Russia operations.”

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