High shipping costs and supply chain disruption have cut inventories and pushed up selling prices at retailer Next.
Reporting results for the half year to July 2021, Next said inventories were down 12% on 2019, while average selling price inflation was running at 2%.
Next called for the government to take “a more decisive approach” in response to the HGV driver crisis.
“The HGV crisis was foreseen, and widely predicted for many months,” the company said. “For the sake of the wider UK economy, we hope that the government will take a more decisive approach to the looming skills crisis in warehouses, restaurants, hotels, care homes, and many seasonal industries.
“A demand-led approach to ensuring the country has the skills it needs is now vital.”
To address labour shortages the government announced plans for 10,000 visas for foreign workers in the haulage and food sectors.
Next said inflation was being driven by rising shipping costs and it expected selling price inflation of around 2.5% in the first half of next year and “that inflationary pressures in shipping will begin to ease as we move through the second half of next year”.
“Over the last few months, the combination of resurgent demand in developed economies, alongside continuing Covid disruption in factories and shipping routes, has delayed deliveries and produced a sharp spike in ‘spot’ shipping prices,” said a report.
Next said financial and operational costs associated with Brexit “have not been material” due to “extensive preparation” over the past three years, but brokerage costs levied by freight forwarders and customs agents had risen by £5m. “We expect to eliminate the majority of these costs by next year through renegotiation and potentially bringing some processes in-house,” it said.
“Disruption to our supply chain means that stock levels are lower than planned and, currently, 12% down on two years ago,” said the report. “These stock levels are far from optimal and have noticeably affected sales in some categories and in stores.”
Next said despite lower inventories “business as a whole has not materially suffered”, perhaps due to customers finding alternatives on its website. Sales in the half were up 7.6% compared to the same period in 2019 and profits before tax were up 5.9%.
The report said inventories in September 2021 dropped by 24% compared to 2019 but this figure was expected to improve to a 5% reduction in December 2021.
The company said: “Our main concern is staffing for the seasonal peaks in warehousing and logistics. Without the contribution of overseas workers to assist with these peaks, we suspect customer deliveries may take longer to arrive as we go into the peak trading season.”
It added: “We anticipate that, without some relaxation of immigration rules, we are likely to experience some degradation in our service in the run up to Christmas.”
Next said a new automated warehouse, due to begin operations in 2023, would initially increase overall warehousing capacity by 45%.
The company also said it was aiming to source 100% of “the main raw materials we use through known, responsible or certified routes by 2025”.
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