Young fashion is the most at-risk clothing category, Next boss Lord Wolfson cautioned as the retailer posted strong first-half results.
Although he was optimistic that some pressures on fashion retailers were lightening, he expected profits at Next’s Lipsy brand to fall this year as young people increasingly shoulder a financial burden likely to have a knock-on effect on sales.
He said: “16 to 22-year-olds were isolated from the credit crunch but now they’re feeling increased fees at universities and the realisation that the debt they’re taking on is real.”
In April, Next forecast that Lipsy would increase profits 50% this year, but in the half year to July 30 profits plunged to £200,000 from £1.1m in the comparable period in 2010. Lipsy made a profit of £3.4m last year but this year it is likely to make £2.4m.
Wolfson acknowledged there had also been some ranging errors last season. He said Lipsy had moved too far into casualwear at the expense of its core party dress offer.
He added that in order to maintain consumer price appeal Next would continue its strategy of making bigger orders, with longer lead times, originally introduced in response to escalating input costs, despite an ease in capacity in the Far East and in cotton prices. Wolfson said: “It does bring risk. We’ll have to make bigger calls on fashion but it’s one that we’re prepared to take.”
He said the change in buying strategy helped Next cap prices, which would otherwise have risen 18% rather than 7% in spring 2011. The retailer does not expect to raise prices in the first half of next year.
Next posted interim pre-tax profits up 8.5% to £228m on sales up 3.6% to £1.57bn, driven by the Directory business and new retail space.
Wolfson expected general inflationary pressures on the consumer to ease from the second quarter next year.