Investment in keeping prices down hits profits but chief executive Ben Lewis ‘pleased’ at performance

River Island has become the latest retailer to warn of the crisis of confidence among younger shoppers, as it suffered a 16% fall in profits.

Profits fell at the privately owned company, controlled by the founding Lewis family, to £116.4m in the year to Christmas Day last year, with sales falling 3% to £802.2m.

Chief executive Ben Lewis told Retail Week that he was pleased with the performance given the tough trading environment, but said that rising youth unemployment and tuition fees were affecting confidence among River Island’s core customers.

He said: “It remains very tough at the moment, everyone is saying that, and conditions have worsened this year. Unemployment among 16 to 24 year olds went up by 80,000 in the last quarter, and also graduates are not getting jobs when they leave university.” Lewis’s fears correspond with Next chief executive Lord Wolfson’s comments to Retail Week last week in which he said young fashion was the most at-risk apparel category as young people were feeling the effects of student fees and debt. He expected Next’s Lipsy business to be hit. 

Lewis attributed River Island’s fall in profits to the need to maintain price competitiveness in the face of rising input costs during the year, which he said were now easing. He said River Island had increased the amount of product sourced in the UK by “double digits”.

The profits were also affected by a £11m increase in payments to directors, which is thought to be an inter-company transfer rather than a straightforward dividend.

In response to the difficult conditions River Island has embarked on its first brand advertising campaign for five years, which will run across press and the web, and also changed its logo (Retail Week, August 5). “We want to communicate to our customers about the width of the offer, its versatility and its fashionability,” said Lewis.

The company has launched a new-look shopfit in Swindon and Stratford, which will be rolled out to other stores in the months ahead.

Kidswear is now available in 80 stores following a successful trial, while the relaunched Chelsea Girl brand was said to have performed well.

The company is also poised to launch an international website to 100 countries, which will go live this autumn. Lewis said the revamped UK website received 2 million visits a week while River Island had 1 million fans on Facebook.