The levels of disposable income for the employed
The economy is a significant factor
that affects the sales of retailers such as Next. After the financial crisis occurred,
the gross domestic product (GDP) fell to negative percent in 2008 (see figure
1), and Next saw profit percentages fall 13.9% (Next Annual Report, 2008). In
2010, however, performance began to improve and returned to a positive
percentage, and the company’s profit was up by 20.8% (Next Annual Report, 2010).
There are many aspects, such as this, that suggest Next sales perform in
correlation to the state of the economy.
Next was one of the many companies
affected by the substantial increase of unemployment levels. In 2011, the
number of unemployed people hit 2.7 million, the highest number in 17 years
(see figure 2). This meant that fewer people were able to spend money on
luxuries, such as the products that Next provides. Therefore, customer demand
was weak at this time, particularly in the homeware area (Next Annual Report,
2011). More recently, however, employment levels have seen a significant
decrease, and as of 2017, were at a low of 4.4%. This is a positive for
retailers such as Next, as more people will have an increased disposable
income, and will therefore be able to afford said luxury items.
Whilst levels of unemployment continue
to fluctuate, the rates of minimum wage increases. Currently, minimum wage for
people aged 25 and over is £7.50, and this will be increasing to £7.83 come
April 2018. The rise in minimum wage means that those that are employed will be
earning more money, and the levels of disposable income for the employed will
increase. For Next, this could mean that, although it is possible that the
number of customers will fall due to unemployment, the amount each customer
spends may increase because of the higher rates pay.
This does also mean that Next will
be required to spend more money on their own almost 50000 members of staff. In
2015, a statement released by Lord Wolfson, the chief executive of Next, said
that the increase in minimum wage “could cost the retailer a total of £80
million in extra wages in the next 5 years” which will result in “a 1% increase
in store prices”. Lord Wolfson admitted to being concerned about a drop in
sales due to this. The increased minimum wage could, therefore, be both
positive and negative for Next.
Another factor that has, in the
past, caused issues for Next is the rise in cotton prices. In 2011, due to
issues such as tight supplies in certain countries, the price of cotton
increased around the world by 10% up to 30% (see figure 2), meaning that Next
was forced to up the prices of their own products. While these prices eased, in
2017 the price unexpectedly peaked once again, rising by around 7%, the highest
level in two and a half years. As a retailer, Next is affected directly by the
uncertain and fluctuating prices of cotton as the cost of producing their
products can surge, which means that profit may lessen unless their clothing
prices rise also.