The fashion and homeware brand Next has delivered a stark warning about potential store closures, a consequence of a significant legal defeat in an equal pay case. The retailer, known for its stylish clothing and homeware, found itself in a legal battle spanning over six years, culminating in a blow last month. More than 3,500 past and present employees claimed victory over pay disputes, asserting that the disparity in base wages between sales consultants and warehouse staff was discriminatory. An employment tribunal sided with the employees, concluding that Next had not convincingly argued that the pay gap wasn’t due to gender bias.
Spearheaded by the retailer’s CEO, Lord Wolfson, Next has voiced anxieties about the potential fallout. While the company anticipates challenging the ruling in an upcoming appeal, they acknowledge the potential consequences. Failure to overturn the tribunal’s decision could lead to store closures as the retailer grapples with escalating expenses. This ominous forecast comes amidst revelations that Lord Wolfson pocketed £4.5 million in pay last year, a handsome sum considering the retailer’s record-high profits of £918 million. The disparity in pay is stark; the chief executive received a fixed salary of £908,000, with benefits of £36,000 and a £136,000 pension.
In its recently published half-year report, Next issued a cautious statement: “In the possible (but unlikely) event we lose this case on appeal, there will be a financial cost to the group and its ongoing future operating costs.” The report highlighted the company’s approach towards its stores, emphasizing that each store operates independently as a business. They must remain profitable to open in the first place and continue trading at lease renewal. The retailer went on to warn that if the tribunal’s decision is upheld on appeal, some stores would become unviable. The report stated: “Materially increasing store operating costs will result in more shops being closed when their leases expire, and will materially impede our ability to open new stores going forward.”
Next’s leadership team also expressed anxieties about the ruling’s potential impact on their warehouse operations. They fear the ruling could “threaten the viability of our warehouse operation” if they are unable to increase pay for workers at these facilities. The company poses a critical question: “If, for many people, warehouse work is less attractive than work in stores… how can a warehouse attract the number of employees it needs?” While Next’s legal team remains “very confident of our grounds for appeal”, they acknowledge that the appeal process could take over a year to resolve.
Despite the looming legal battle, Next projects an optimistic business outlook. The retailer has raised its annual profit forecast for the second time in under two months, and anticipates a drop in prices for its upcoming autumn and winter collections. In a recent announcement, Next revealed a substantial 7.1 percent rise in underlying pre-tax profits, reaching £452 million for the six months ending July 27. This financial boost coincides with an eight percent total group sales increase. However, UK sales saw a mere one percent uptick, hindered by the Next brand, where sales dipped as much as 7.4 percent in June due to lackluster demand for seasonal offerings during an unexpectedly cool early summer.
Next highlighted a significant 23 percent surge in overseas sales during the first half, and notably mentioned that UK trading since then has been “materially” stronger than anticipated, thanks to more favorable weather conditions over August. The retail giant experienced a 6.9 percent increase in full-price sales during the initial six weeks of the second half, leading to an upward revision of its annual sales growth forecast to four percent. The company anticipates a five percent rise specifically in UK retail for the third quarter. Its full-year profit outlook has been bolstered by £15 million, projecting a robust £995 million, an 8.4 percent increase compared to the previous year.
Shoppers feeling the pinch may find some relief, as Next announced that it is cutting prices even further for its upcoming autumn and winter lines. The reduction of 0.3 percent follows an earlier decrease of one percent in the first half of the year. Despite the challenges, Next remains optimistic, but the outcome of the appeal will undoubtedly shape the future of the retailer and the fate of its stores.
