Fashion chain makes £265m on store credit by charging rates of 60pc

by Rachel Millard ONE of Britain’s fastest-growing fashion chains is raking in hundreds of millions of pounds by encouraging customers to pay on credit deals which have interest rates of almost 60pc.

N Brown – whose brands Jacamo, Simply Be and JD Williams are advertised by TV star Lorraine Kelly, model Lisa Snowdon ( pictured) and former cricketer freddie flintoff, and has more than 4.3m active customers – makes almost a third of its income from interest and fees rather than selling clothes, a Mail investigation has found.

The firm, which specialises in low- cost and plus- size clothes, advertises an APR on purchases of 39.9pc but which can be as high as 58.7pc. It also levies fees of £12 for late payments.

Its annual report has revealed that £265m of its £901m sales came from credit arrangements and associated fees.

Over the latest year the company wrote off 28.9pc more debt than the year before – £146.4m compared to £113.6m. Analysts said in May that the proportion of debts not past due was 83pc, up from 80pc. Bosses say in the annual report that cash customers are ‘less profitable’.

James Daley, founder of campaign group fairer finance, said: ‘It’s worrying that retailers see this as a new line in profitability. I don’t think it’s very sustainable. At some point we are going to have a recession where a lot of people will be unable to pay these debts. We are at 2008 levels of debt and it is increasing at record levels.’

N Brown is far from the only clothing retailer using credit, but it is one of the most reliant.

Around 2.5m Next customers buy on credit compared with 1.4m who buy with cash, and the company looks after customers’ debts of £1bn. But only about 5pc of its revenue comes from directory account interest – some £213m of its £4.1bn of total revenues.

Shop Direct, owner of Littlewoods and Very, says financial services contribute a ‘significant’ portion of revenue – with half of new customers opening a credit account – but does not disclose how much. The company claims that customers don’t pay interest on around two- thirds of the credit it provides. The represent- ative APR on Littlewoods is 0pc and on Very it is 39.9pc.

As well as the problems for customers, some fear N Brown’s high level of debt makes it more at risk from economic cycles.

Shore Capital analyst Clive Black said: ‘If we were having this conversation four or five years ago I think we would have been much more concerned about it.’

An N Brown spokesman said: ‘In September last year our financial services business was granted full and unconditional authorisation by the City regulator the fCA. This shows unequivocally that they are satisfied with the way in which we manage our business and treat our customers.

‘We are very aware of our responsibilities and we actively alert customers in advance of the monthly payment date so that they do not accidentally incur interest charges. Credit limits and therefore balances are typically low and the vast majority of customers keep up their payments without any problems.

‘Where customers do experience problems, for whatever reason, we are very proactive in agreeing payment plans – involving the suspension of all interest and charges where appropriate – to help get them back to a better level of financial health.’