Next chief executive Lord Wolfson has said the biggest risk to the retailer in the event of a no-deal Brexit is that ports will seize up and restrict the flow of goods coming into the UK.
Next set out its plans today for a no-deal Brexit as part of its interim results for the six months to 31 July, pointing to tariff and duty increases, delays at ports and a potential reduction in the value of sterling as three key challenges.
Wolfson said that a free trade deal would be better for the business, but Next would not incur any significant costs or material threat to operations and profitability in the event of a no-deal Brexit, although the indirect costs will be greater.
“The biggest risk to businesses, isn’t tax or duty – it is that the ports won’t work. The government needs to alleviate the pressure on ports and the volume of work carried out there.
“It is a risk beyond our control but there is lots of time to make sure the ports run smoothly. If the ports stop working, it will be a problem – we are always running out of our bestsellers. If we have to do with EU stock what we currently do with non-EU stock, we won’t have any issues but we need to streamline import processes.”
Next said there was an opportunity to streamline import processes and urged the government to consider changing some current customs practices, procedures and rules to speed up the processing of in-bound traffic. Next has asked the government to:
- temporarily raise import thresholds for goods brought into the UK by small importers so they avoid customs procedures;
- implement the kind of self-assessment tax procedures for customs tariffs and duties that mirror other UK taxes like VAT, as this would push back administration back from the point of entry and alleviate pressure
- extend temporary trusted trader status to many more importers through a simplified application.
It also asked the government to clarify its intentions in respect of overall tariff rates in the event of a no-deal Brexit, so it could determine product prices for the coming year.
Next increased its profit guidance for the full year by £10m to £727m after sales in August and September exceeded expectations.
Pre-tax profits rose 0.5% to £311.1m for the six months to 31 July and Next brand full-price sales were up 4.5%. Total sales, including markdowns, were up 3.9% on the same period last year.
In-store sales fell 6.9% year on year, while online sales were up 16.8%.
Sales at Next’s Label were up 24.2%, driven by growth from existing partner brands and newly introduced brands.
In the year to January 2019, Next anticipates partially offsetting cost increases of £55m with cost savings of £43m.
Wolfson said the store estate remains “extremely profitable” and landlords have been “very reasonable” in negotiations. This year 33 leases are up for renewal and rents on them are being reduced by 28%.
“If we get to the end of lease and if the location has gone off point, or if the terms are not favourable, we won’t renew. A total of 99% of our stores are profitable. The number of stores we close depends on the rents – it depends on the landlords.”
On the continued tough trading on the high street Wolfson said he could not predict how the retail landscape will look in 10 years but added that retailers need to take responsibility for their own success or failure: “We can’t predict what’s going to happen in future. We need to be flexible and disciplined enough to keep going forward. In 10 years’ time all we know is that people on the high street will still be wearing clothes. But the way they buy them is changing and we just need to make sure we adapt quick enough.”