Digital revenue levy will hit high street, says Next boss
Retailer brings a much-needed reminder that the high street isn’t completely dead and that there is still a future in bricks and mortar ‘Selling other brands has paid off handsomely, boosting sales of its own clothes’
THE boss of Next has heavily criticised plans for a digital sales tax, warning it is a dangerous idea that will further trash the ailing high street.
Simon Wolfson said that an online levy would hammer demand for the click-and-collect model that has helped revive many retailers’ fortunes – giving consumers yet another reason to shun bricks and mortar shops.
Ministers are reportedly considering an internet sales tax as part of efforts to bolster the public purse and court campaigners demanding action to curb the power of US titans such as Amazon.
But speaking as Next revealed it had suffered a less severe sales slump during lockdown than first feared, Lord Wolfson said the proposals are badly thought through.
He said: “There is a potential for a massive own goal [from the Treasury],” he said. “It could severely reduce the number of people going to the high street if click and collect is taxed.”
Next now makes about half its revenue from goods sold through the firm’s website or click and collect in store. It has proved one of the few traditional retailers able to cope with a dramatic shift online by shoppers.
It was this week reported the Chancellor is considering two types of online tax: a levy of 2pc on all goods bought online, to raise £2bn a year, and a fee on consumer deliveries that would help to curb pollution.
Lord Wolfson is not completely against a tax on home deliveries, but said it would be a mistake to impose one on goods bought online and picked up from a shop. He said instead of an online tax hike, the most useful change would be to reform business rates.
Next boss Lord Wolfson has survived enough crises to know not to panic. But even he sounded alarmed at the start of the pandemic, describing it as something that has “simply not been experienced by a modern global economy”. Fast forward less than three months and the usual sense of calm has been restored after the chain reported a lower-than-expected fall in quarterly sales and upgraded profit guidance. It also predicted that even in a worst-case scenario it will finish the year £15m in the black but could post profits of as much as £330m.
“The company is in a much better position than we anticipated,” Wolfson says. What a refreshing change from all the profit warnings and the gloom that has cast a seemingly permanent shadow over the high street.
Its shares rose almost 8pc yesterday, meaning the stock has rebounded 65pc from an eight-year low of £33.90 at the beginning of April.
But, as ever with Next, it’s the detail that stands out. There were fewer returns; surplus stock was kept down; and it is planning to boost online sales further by pushing back the cut-off time for next day deliveries from 8pm to 10pm.
It is a much-needed reminder that the high street isn’t completely dead and that there is still a future in bricks and mortar. More crucially perhaps when hundreds of stores are closing every week, Next demonstrates that it is possible to have successful shops alongside a thriving online operation.
Footwear retailer Hotter Shoes is the latest to beat a hasty retreat. It is closing all but 15 of its 61 stores, at the cost of 1,000 jobs.
Retailers complain endlessly about the internet, unsustainable rents, business rates and the weather, but there is no excuse for poor products, rundown stores in second-rate locations and a failure to invest in online. That’s the reality for most struggling names.
At its heart, retailing is as simple as selling things that customers want. There isn’t actually anything that remarkable about Next, it is just very good at getting the basics right. Years of investment in its digital operations are now paying off. Its stores are a crucial part, acting as showroomscum-click-and-collect points, and a key outlet for returns, allowing customers to make additional or alternative purchases.
Meanwhile a strategy of selling third-party brands has paid off handsomely, boosting sales of Next’s own-label clothes rather than cannibalising them as the naysayers predicted.
The upshot is not a business that is exactly thriving – even for Wolfson that would be a stretch – but one that can comfortably withstand the greatest of shocks. Next continues to set the standard for other retailers.
No walk in the park for Stroll
Lawrence Stroll must wonder if he upset someone in a former life. First his rescue of Aston Martin was almost derailed by a global health emergency, then having pushed ahead with a £560m fundraising anyway, the carmaker needed another £260m cash injection just three months later.
As if that wasn’t enough, it has now uncovered an accounting farrago at its US arm dating back to 2018, the year that Aston Martin joined the stock market, selling shares at £19 a go. The cock-up means that last year’s losses were actually £70.9m compared with the £55.6m that had been reported.
Still, at least it helped to distract from the main event: another set of rotten results. These were much worse than the last ones, unsurprising perhaps given the impact of Covid-19, which forced it to quickly shut dealerships and factories around the world. In the first half, turnover plunged two thirds to £146m and it sold 1,770 cars, a 40pc fall on the previous period. Pre-tax losses almost trebled to £227m.
“This has been a very intense and challenging six months,” Stroll said. The art of the understatement lives on at Aston Martin.
Big beasts ready to top up reserves
First British Airways, now Rolls-Royce. Despite successfully weathering the worst of the storm, even the big beasts of the FTSE will need to raise further funds to get through the next stage of the crisis. Both are victims of the severe downturn in travel, exacerbated by our own government’s cack-handed response.
There has been speculation that ministers will be forced to step in and bail out Rolls but there seems little chance of that. The Treasury has made it clear that shareholders should be the first port of call for struggling companies.
According to reports, a £1.5bn cash call looms, though City sources point out that the company burnt through £3bn of cash in the last quarter so the eventual figure is likely to be closer to that. Whatever the amount, it should end all talk of the taxpayer stepping in.