Younger chain Lipsy to be hit as effects of debt start being felt by 16 to 22 year olds
Young fashion is the most at-risk apparel category, Next boss Lord Wolfson has cautioned despite posting strong group first-half profits.
Wolfson expects profits at Next’s young fashion business Lipsy to fall this year as young people increasingly shoulder a financial burden which is likely to have a knock-on effect on sales.
He said: “The 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.”
Lipsy was forecast to be one of the jewels in Next’s crown this year. Back in April, the retailer expected Lipsy to increase profits by 50% and set out expansion plans to open 20 new stores in its current year.
However, in the half-year to July, profits plummeted to £0.2m from £1.1m in the comparable period. While Lipsy made a profit of £3.4m last year, this year it is likely to make £2.4m. Wolfson said he would still open Lipsy branches but they were likely to be in Next stores rather than standalone.
Wolfson acknowledged there had also been some Lipsy ranging errors last season, but the performance also reflects changing market conditions.
Verdict analyst Maureen Hinton said price rises will have hit young people hard. “They haven’t got high levels of disposable income,” she said. Youngsters’ access to credit is also restricted, said Retail Week Knowledge Bank director Robert Clark.
Hinton said that new UK young fashion entrant Forever 21 could make life even more difficult in the category as it targets market share.
At group level Wolfson also said that in order to maintain consumer price appeal Next will continue its strategy of making bigger orders with longer lead times, originally introduced in response to escalating input costs, despite an easing of pressure on capacity in the Far East and in cotton prices.
Wolfson said the change in buying strategy had helped Next cap consumer prices, which would otherwise have risen 18% rather than 7% in spring 2011. Next does not expect to increase 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. The sales rise was driven by Directory and new retail space.