Next chief executive Lord Wolfson has said global powerhouse China offers limited opportunities for the fashion and homewares retailer and others like it.
His comment contrasts with other retail giants such as Argos, Asos and Ted Baker, who have pinpointed the region for growth. Asos boss Nick Robertson is spending two years launching a country-specific website in China, which has a growing population of more than 1.3 billion.
Wolfson said his experience in the country, where it operates five stores, two of which are company-owned and three franchises, showed it was not the promised land some western retailers had hoped for.
“China’s an enormous place but the average wages are a quarter of what they are in the UK,” he said. “Our prices are not going to be any cheaper so the number of people who can afford Next clothing there is limited. We’re cautious on the opportunity.”
Despite this, Wolfson is launching a Chinese website this year to capitalise on Next’s growing online and international businesses.
Its soaring Directory sales, which are predominantly made up of online sales, helped the retailer’s group underlying pre-tax profit from continuing business jump 5% to £570.3m in its full year to January 28. Directory sales surged 16.4% to £1.08bn over the period.
Total retail sales dropped 1.4% to £2.2bn in the face of “anaemic” consumer demand.
Wolfson said he will be “ruthlessly pruning” the Next portfolio over the year, although overall store numbers will remain relatively static. In its last year, Next opened 26 shops and closed 15. The average profitability of the closed stores was 7%. “As soon they look dangerous, we will shut them,” he said.
The retailer is set to roll out its Home and Garden store format, which launched last year at Shoreham, Sussex. It has identified 19 new sites for the format, which includes light DIY products and a small garden centre as well as its home and fashion offer.