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Brexit makes many see red (or, in extreme cases, assume the hue). And it seems the pro-Leave chief executive of retailer Next wants more to do so.
Alongside Thursday’s half-year results, Simon Wolfson published an updated Brexit impact analysis, with all the numbers that have changed since it was first published a year ago highlighted in bold red type. But the only people likely to turn puce on reading it are those warning of the damage of a no-deal Brexit. Because Lord Wolfson’s minimally florid prose says there is “no risk” of tariff or duty increases — only a “£25m” saving.
Of all the “Key Risks” that were quantified by the retailer in September 2018, only one has since changed: the UK government’s new temporary tariff regime in the event of a no-deal Brexit means Next stands to save £32m a year — more than offsetting a £6m rise in EU duties and an extra £1m for importing from countries currently covered by EU free trade agreements.
Similarly, of the “Additional Administrative Costs”, only one is now in the red: customs charges are revised upwards by just £50,000 to £150,000, to cover a higher volume of declarations. All other impacts are either unchanged or lessened.
Might Lord Wolfson’s sanguine view be a product of rose-tinted spectacles? Not judging by his consistently pragmatic assessments of all other commercial variables.
Next’s half-year results show how he persistently errs on the side of caution: pre-tax profit of £320m was again slightly better than expected, and although full-year guidance was only maintained, it had been raised to £725m in July after sales growth proved double a conservative initial assumption. Next’s full-year results, in March, also contained a 15-year “stress test” of its entire business, modelling sales growth and cash flows under a range of economic scenarios — one imagining 357 store closures.
However, that impressive — and peerless — exercise does draw attention to one shortcoming in the Brexit document: a reluctance to acknowledge any possible impact on consumer sentiment. Instead, Lord Wolfson says: “Some suggest that the fact of Brexit, of itself, might undermine consumer confidence . . . Our experience is that political storms, of themselves, rarely affect sales.”
That appears to be the exact opposite — and a complete dismissal of — John Lewis’s warning last week. Its chairman, Charlie Mayfield, said: “Brexit continues to weigh on consumer sentiment . . . should the UK leave the EU without a deal, we expect the effect to be significant and it will not be possible to mitigate that impact.”
So who is right? Both, in a way: costs may not rise, but consumer spending could fall. And both should be applauded, as this column has already argued, for giving stakeholders an honest assessment. But Next’s red ink and the John Lewis blues suggest each is being a little colour blind — and missing half the picture. After Brexit, retailers’ profits will depend on imports and customers being worry-free.
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