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Next Maintains Guidance as Online Sales Keep Growing

Ellen Milligan

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The cost of baby clothes could rise in the U.K. if the country crashes out of the European Union without an agreement, according to retailer Next Plc.

Few sleep-suits and other newborn items are made in the U.K., leaving these clothes exposed to tariffs under a temporary regime unlike some women’s garments, Next Finance Director Amanda James said in an interview Thursday.

“If you import a baby grow under the temporary tariff regime, you would still pay duty and that doesn’t seem to make any sense,” James said by phone. “There doesn’t seem to be any sort of pattern as to why baby grows have their tariffs left on and a lady’s jacket doesn’t.”

Next urged the government to review the list of items that will face temporary tariffs as it reported half-year results. The cost of men’s underpants and jackets may also go up under a catalog drawn up by the U.K. department for international trade. Fears of product shortages and supply-chain disruptions were reinforced last week when U.K. Prime Minister Boris Johnson published the government’s worst-case scenario for a disorderly Brexit.

Slow Start

Discrepancies in tariffs on apparel aren’t the only cause for concern for the Leicester, England-based clothier. Autumn sales got off to a slow start, the company said, clouding near-term prospects at one of the country’s best-performing retailers. Next’s shares fell as much as 5.2% in London, though they’re up 48% this year.

Concerns about the EU divorce have prompted consumers to slow spending, a change Next has weathered better than rivals by investing in e-commerce. Overall clothing prices will probably decline about 2% at the retailer as most items don’t face tariffs, according to Chief Executive Officer Simon Wolfson.

Even if the U.K. and the EU are unable to reach a divorce deal, Brexit doesn’t pose a material threat to its operations or profitability, the company said. The tariff regime would in fact reduce the company’s import duty by 25 million pounds ($31 million).

“Prices on kidswear will come down, but they could come down more on certain categories,” said Wolfson, who has spoken in favor of Brexit. “For example, on children’s coats tariffs are being abolished, bringing prices down, but on baby grows they’ll still be there.”

Baby and children’s clothes are a cornerstone of Next’s growth strategy. The retailer struck a new product license agreement with Ted Baker Plc in August with the aim of driving sales in that category.

The company already has agreed on prices for 80% of its stock to be sold in the first half of next year, it said, although customs clearance will cause additional administration costs of around 150,000 pounds per year.

(Updates with CEO comments on costs in sixth paragraph.)

To contact the reporter on this story: Ellen Milligan in London at emilligan11@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Marthe Fourcade

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