.As clothing
chains such as Next are hammered by high cotton prices, the recent VAT
hike and the government’s austerity measures, Wolfson, a working peer
who is close to the Conservative party, talked of a “new normal” for
shops ..Official figures underlined the scale of the challenge. Retail sales in the UK dropped 0.8% last month
from January, when sales were up 1.5% as shoppers took advantage of
post-Christmas sales and tried to beat the rise in VAT to 20% ..”Retail
in the UK is going to be different over the next few years,” Wolfson
said. “The consumer environment is likely to be dominated by the
challenges of global
public sector cuts and limited growth in consumer credit. These factors
mean that retailers cannot plan for never-ending growth in
like-for-like sales that many have enjoyed over the last 15 years.” ..Ian Cheshire – his counterpart at Kingfisher
owner of B&Q – echoed some of his comments as he announced broadly
flat sales. “The UK is going to have a tricky first half and probably a
slightly better second half. It was our weakest market last year after
Ireland.” Kingfisher makes only a third of profits in the UK, with the
rest from France, Poland and other countries ..Next has worked out
that consumers had £21bn less in their pockets in the year to January
compared with the previous year, due to hefty rises in transport, food
and housing costs which added £10bn, £7bn and £4bn to household bills
respectively. “The effect of inflation is going to be at least as much
if not more for consumers, certainly for our customers, than the public
sector cuts,” said Wolfson ..Next’s prices are up 8% in the first
half and are set to rise 8-10% in the second half, although Wolfson is
optimistic that the pressure on cotton prices is likely to ease towards
the end of the year. “There is an awful lot more planting this year.” ..Next’s
2010 revenues were broadly flat at £3.45bn, while profits before tax
rose 9% to £551m. Sales at Kingfisher were also broadly flat at £10.45bn
while underlying pre-tax profits climbed 23% to £670m ..Despite
the government’s efforts to boost UK manufacturing, Wolfson poured cold
water on the idea that Next could start making clothes in Britain again.
“It’s not viable to manufacture in the UK. Wages are five to six times
higher than they are in the Far East.” The company has taken steps to
secure supplies from China by adding new suppliers and booking fabric
and production earlier, after problems in the second half of last year ..Economists
said February’s fall in retail sales was further evidence of weak
consumer spending and the fragility of the economic recovery ..”A
weak number always looked likely on the back of the plunge in consumer
confidence and the fact that prices are rising at double the pace of
household income growth,” said Alan Clarke, UK economist at BNP Paribas.
“The latter is going to be a major influence over the rest of the year
so numbers like today’s retail sales are likely to be commonplace.” ..Cheshire
outlined plans to turn Kingfisher from a conglomerate into a more
integrated business by introducing similar ranges in different
countries, starting with the UK and France, although he stressed: “We
don’t want to be like Ikea.” ..The company has successfully piloted
“easier” products at its French Castorama chain, such as clip-on tiles
that do not need grout and garden fences made from module panels and
posts, and is now bringing them to the UK .”He said: “We used to be Europe’s great DIYers but seem to have been overtaken by the French. ”