Next prevails over supply challenges

25 March 2011

25 March 2011 | Angeline Albert  

Clothing chain Next has overcome supply shortages and rising cotton prices to achieve profits of £551.4 million.  

According to financial results, published yesterday for the year ending 31 January 2011, the retailer achieved a 9 per cent rise in profits before tax, when compared to £505.3 million the previous year, and had to overcome buying challenges to do so.

In its report, Next admitted that in the second half of the year, it had “experienced increasing difficulty getting stock into the business on time from suppliers”.

The retailer said the shortages were the result of production constraints in manufacturing sites in China. With inventories at low levels post-recession, suppliers were playing catch-up to meet increasing UK demand for clothes. Some of Next’s suppliers had also left the industry during the 2008/9 downturn resulting in its buyers having to source new suppliers to meet demand.

In its report the group said: “We have taken steps to secure capacity through the addition of new suppliers and booking fabric and production earlier. Currently stock intake has been in line with our requirements and we expect stock levels to be at least 10 per cent ahead of last year throughout the season.”

Buyers also had to work to get good prices from manufacturing suppliers despite rising cotton prices. Last November, Next CEO Simon Wolfson, said the cost of cotton had leapt by 90 per cent when compared to the previous year.  

Wage increases in countries where Next sources products, together with a rise in oil prices, also contributed to buying challenges.

Yesterday Wolfson said that if the group hadn’t taken steps to mitigate the risks of rising cotton prices and supply constraints, consumers would have seen prices rise by at least 18 per cent instead of the 8 per cent which had been expected. From next September he expects prices to rise by between 8 and 10 per cent.

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