Now the high street’s resilient two fall victim to downturn

Bellwether John Lewis reported an 18 per cent drop in first-half profits following the decision to stick to its ‘Never Knowingly Undersold’ promise to match price-cutting by rivals in a tough retail market.

John Lewis said it expects the tough trading conditions to persist into 2012.

Next, the UK’s second biggest fashion retailer behind Marks & Spencer, said a further deterioration in European sovereign finances represents “the biggest unknown risk” to the business.

Next chief executive Simon Wolfson said: “At the moment, what’s going on with the sovereign debt crisis in Europe isn’t affecting consumers.

“There’s a chance it could happen, of course. It’s not going to be good news. It almost inevitably would put a further squeeze on lending in the UK.”

He was speaking yesterday as Next’s high street stores reported virtually flat sales and profits.

The group was saved by its online business, Next Directory, which reported a 15 per cent increase in sales.

John Lewis said its ‘Never Knowingly Undersold’ promise to shoppers cost an additional £9.3m in the six months to July 30, equivalent to around £50,000 a day.

It meant the 32 John Lewis stores and website saw a 55 per cent fall in operating profits to £15.8m, despite a one per cent increase in like-for-like sales.

Profits were also lower at Waitrose, which has stores in Sheffield, Willerby, Otley and Harrogate, as the partnership’s supermarket division absorbed rising food costs and stepped up its investment programme with more customer offers and new store openings.

Group half-year profits fell to £90.4m from £110.5m after revenues rose 6.4 per cent to £4.05bn.

The price match promise is expected to cost John Lewis a similar amount over the rest of this year, but department stores boss Andy Street said there was “absolutely no plan” to step away from the price policy.

The decision to also match online prices, which was taken last year, underlined the group’s commitment, he added.

Most of the extra cash was spent refunding price differences in its electrical and home technology arm as customers shopped around for the best deals on computers, televisions and other electrical goods.

The pricing activity helped it outperform competitors in all three of its core markets, but especially in electricals and technology where sales rose by 3.8 per cent.

Waitrose sales surged by 8.7 per cent to £2.6bn, but profits dropped by 13.8 per cent to £110.2m as a result of rising food and investment costs.

At Next, Mr Wolfson said that if there are no further shocks from worsening European sovereign finances, there is no reason for any dramatic change in the UK consumer environment in 2011.

On the bright side he expects an improvement in 2012 as inflationary pressures moderate.

“Any recovery in spending is likely to be slow and take a long time, but it seems reasonable to believe that by the second quarter of next year we will begin to see some recovery in the consumer environment,” he said.

Next said there will be little or no inflation in its selling prices in the first half of 2012.

The group made an underlying pre-tax profit of £228m in the six months to July 30.

Sales at Next stores fell 1.7 per cent, while Directory sales rose 15.1 per cent.

The firm said it now expects underlying pre-tax profit of between £545m and £590m in the year to January 2012, up by between 0.4 per cent and 8.7 per cent on the 2010-11 outcome.

Next ended the half with net debt of £640m and is paying an interim dividend of 27.5p, a rise of 10 per cent.

Analysts at Credit Suisse said: “Next continues to have significant attractions with a strong balance sheet.”

The top-up shopping lifestyle

TOP-UP shopping is seeing no sign of a slow down, according to new research by advertising agency Gratterpalm.

Top-up shopping is dominating the UK’s food and grocery market with an estimated value of over £73bn and it is set to outperform the total grocery market over the next five years, according to the Leeds-based agency.

The term top-up shopper refers to consumers who buy food and grocery for the home in between the main household shop.

Long working hours, more single occupant households and a demand for fresh food are the main reasons why 87 per cent of the UK’s adult shoppers do regular top-up shops.

Dairy, milk and eggs are the top three categories bought by the top-up shopper, followed closely by fresh fruit and vegetables.

Confectionery, including biscuits, chocolate and sweets, are also prevalent on top-up trips, but more than 80 per cent of shoppers stated fresh food replenishment is the main reason for a top-up shopping trip.

Darren Hawkins, planning director at Gratterpalm, said: “Top-up shoppers lead a busy lifestyle that is led by immediate needs rather than a pre-planned mentality.

“With a big weekly shop, they find that half the produce goes into the bin at the end of the week, so they shop for specific products or an occasion to reduce waste.”

Some 87 per cent of the UK population do at least one top-up shop every two weeks.

Expenditure is considerably higher at the weekend, reflecting the prominence of alcohol in shoppers’ baskets.

Convenience is of paramount importance to the top-up shopper, with 70 per cent stating ‘close to home’ as a reason for store choice.