Simon Wolfson, chief executive of fashion chain Next, has warned that consumer spending is on the decline and is likely to be further constrained in the approaching months due to the government's announced austerity measures and increase in VAT.
Mr. Wolfson further said that clothing prices could increase as much as 8 per cent due to increase in the cost of raw materials such as cotton.
Retailer’s finance chief David Keens also said that rise in cotton prices and the VAT would put upward pressure on clothing prices.
Speaking on the topic, Mr. Keens said, “We don't believe people will spend more, although hopefully they will not spend less and that will put pressure on margins for next year.”
However, Next said in its half-year trading update that it still expected to reports pre-tax profits of between £535 million and £560 million. That would represent a year-on-year increase in pre-tax profits of between 6 per cent and 11 per cent.
Next saw a drop of 1.5 per cent in underlying sales during the first-half. The fashion retailer also forecast a further drop in underlying revenues in the range of 1.5 per cent to 4.5 per cent for the second half of the current year. Gloomy outlook for the next year dragged shares in Next down by 170p to 2,029p-a-share.
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