What Next for the cost-of-living crisis? Even retail Nostradamus Wolfson is flummoxed 

Next boss Lord Wolfson gives us his view on what will happen in the year ahead in "an increasing uncertain world".

Next boss Lord Wolfson is retail's Nostradamus
Next boss Lord Wolfson is retail's Nostradamus

Next boss Lord Wolfson is seen as retail’s Nostradamus, with an uncanny ability to predict what will happen not just in retail, but on a broader macroeconomic level. In fact, he was one of the first business people to predict the 2008-09 economic crisis.

However, as the UK faces into the biggest cost-of-living squeeze in more than 30 years, even Wolfson is stumped on what to expect next.

“We’ve never seen anything like this before and we’re not quite sure how it will pan out,” he admits.

“The uncertainties in the year ahead are not ones we’ve had any experience of in the last 20 or 30 years, in terms of the level of inflation in essential goods or inflation in our own products.”

The UK may well have experienced rising inflation and cost prices before, but Wolfson, who has led Next for 20 years, says inflation is  “much more widespread” than during even the Credit Crunch.

The Next boss is keen to point out that the current cost-of-living crisis is caused by what he terms a “supply-side” problem.

He explains that disruption to global supply chains, along with what he terms  “chronic labour shortages” in many parts of the UK economy, mean that there are simply not enough goods, energy and skilled workers to maintain living standards at the levels we have become used to.

Wolfson believes Government policy can – and should – help alleviate this.

“We are disappointed that the wider Government has done little or nothing within its powers to increase the underlying supply of goods, energy and skilled workers.

“It is important to recognise that Government interventions to ‘pay for’ inflationary increases does nothing to increase the underlying supply of goods and services.”

Wolfson says there is much the Government can do to increase supply: “It can reverse the self-defeating barriers it has placed on overseas workers supporting our economy and accelerate, simplify and reform the planning process to increase the supply of desperately needed housing.

“We hope that the Government will use its powers wisely and do all it can to tackle the UK’s many supply side constraints. I’m yet to see any evidence that they will do.”

Spiralling freight costs to ease in 9 to 12 months

Wolfson says that in terms of the cost of its own goods, rising freight cost is the biggest factor pushing up prices. 

He explains that retailers have exacerbated the supply chain crisis by ordering higher volumes of stock.

“As the world restocked over the last six months there’s been a squeeze on manufacturing capacity worldwide which has pushed prices up. All of us have ordered more products to account for the longer time it takes to get here. That’s created a squeeze on capacity,” he says.

However, he expects the situation to improve by early 2023. “In the best case scenario we’ll see an easing of pressure in the next 9 to 12 months.”

Despite Wolfson’s warnings, Next had a better year than expected last year. He revealed yesterday that pre-tax profit rose 10% on pre-pandemic levels to £823 million, which is up a whopping 140% against last year. Full price brand sales also jumped 12.8% on 2019/20 figures.

Wolfson says this is largely because of “the strength of the underlying consumer” and the level of pent-up demand after lockdown. 

Pre-pandemic behaviour returns

Much has been made about the pandemic transforming consumer behaviour, however, Wolfson says his customer has returned to their old shopping habits since restrictions have eased.

Next formalwear sales have improved
Next formalwear sales have improved

There has been a return to more formal dressing and a notable reduction in home and “very casual” clothing sales at Next.

“We’re seeing a return to pre-pandemic habits across the board. The participation of different categories is going back to where it was before the pandemic. I think it’s a straight reversal of trends,” he says.

“If people are sitting at home and not going to work they’re not going to buy a suit or a blouse but the if they’re going work they’ll buy a suit.”

Wolfson also highlights a trend towards “more investment dressing”, with shoppers spending more on outfits.

“We are seeing consumer preferences moving slightly up our price architecture. They’re buying fewer, cheaper items and more investment purchases.

The Next boss did acknowledge that the growth of working from home had stimulated more sales during the week for the retailer.

“More business is moving into the week from the weekends. I think that’s all about working from home and people being able to manage their time across seven days of the week rather than doing a 9 to 5 and having their leisure time at the weekend. We’re not seeing as big a weekend peak as we would have done pre-pandemic.” 

READ MORE: Retail reacts: Spring Statement fails to avert cost-of-living crisis

Store sales improve

Despite the headwinds experienced so far in 2022, Wolfson admits that Next’s performance is “slightly ahead” of what it expected in January.

“I wouldn’t want you to think that the UK performance is strong,” he says. “What we’re seeing so far is slightly better than anticipated but you shouldn’t read too much into that as cost-of-living pressures are likely to increase throughout the year.”

Despite the proclamations, Wolfson says he is “less pessimistic” about the performance of its retail stores, although conversely he is not quite as optimistic about its online business, over the year ahead. 

Next Oxford Street
Next expects its stores to perform better in the year ahead

The retailer expects shops to contribute an additional £78 million sales in its current year, whilst online is expected to make £168 million fewer sales, although the vast majority of this shortfall comes from the closure of Next’s Russian and Ukrainian websites.

Wolfson says Next stores have benefited from other retailers disappearing from the high street. “We underestimate the effect of other people leaving the high street on our shops. There are a lot of names that were there three years ago that aren’t there today,” he says.

However, do not expect Next to open any further stores. In fact, Next expects to reduce retail space by around 2% over the year ahead due to the closure of around 15 stores.

The retailer plans to open two department store format stores this year, one in Watford’s Atria centre next month, and the other in Manchester’s Trafford centre due to open by the end of the year.

However, Wolfson says he will not be investing heavily into stores. “You shouldn’t expect a radical change in our store portfolio. Because retail sales are still moving backwards there just isn’t the money to invest in refitting the whole shop.”

He predicts this will be a trend across retail: “What you’ll see in general is less investment in physical retail. It’s much harder to justify investing the same amount of capital in moving or changing shops.”

However, Next is looking to add other products and concessions to its stores.

“We’re looking for opportunities to add other products into our shops where we’ve got surplus space,” he says.

Next’s Total Platform business, which offers third-party brands access to the retailer’s online logistics and back-end systems, gives it the opportunity to team up with brands and strike concession agreements, says Wolfson. 

Next launched its first Gap concession in it’s Oxford Street store this month and Wolfson says it is actively looking for more partnerships of the same ilk.

The cost-of-living crisis may create uncertain times that even has Wolfson scratching his head, but he’s clearly not sitting on his laurels. Instead, he continues to find more ways to get customers shopping with Next. Some things remain predictable as ever.

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  1. Next have already shut 19 stores with a sales loss of £23.6m on the quiet and plan to shut a further 15 which will probably be another £18m worth of sales lost. Your find over the coming months and years they will start shutting more and more stores and reduce there store estate down to about 300,350 stores ( could even go low as 150 ) This is because they have put all there eggs in one basket for online and can’t change there business model without causing the company to fold. It’s why there filling there stores with an array of concession brands to keep its stores alive.

    I constantly have ago at Next as I believe they are contributing to the demise of the physical fashion retail. People don’t realise when shops close down the knock on effect it has to other from cars being not being MOT’ed & serviced as there less area managers on the road to less cleaners, security guard and general maintenance people. Primark and Tk have got there online right by bringing people into there stores as Next constantly push you away to there online.

    Your find as well Next have to keep quiet about store closures as it will affect the companies value on the stock exchange market.

  2. @yvonne A good retailer will always review their store portfolio. They will open and close stores as required. If a store is not hitting the targets and the local demographics show that future targets will not be met, a good business operator will close that location.

    Its why Next have outperformed the industry year after year after year.

    Look at the big names that have gone bust. Too many allowed underperforming stores stay in the portfolio for too long. Debenhams was a prime example. Poor estate management and they pandered too much to the “we’ll fix it” brigade and given chance after chance.

    Next are being very cautious now as spending on non essential goods will drop considerably over the next 12-18 months. It will drop in physical retail stores and it will drop online. Good retailers will hibernate their expansion plans for that period – and that is exactly what next are doing. I’m a retailer – I will be following their example.

  3. @peter
    Debenhams got sloppy. They didn’t have the balls to charge the concession brands both rent and percentage of there sales like other departments stores do. They also relied on unstable brands. They potentially could still be here if it wasn’t for the collapse of Arcadian group and got there store expenses under control, which is a bit of a cop out as they didn’t work store space well enough and keep up with latest trends.

    Next aren’t a good physical retailer. Reason there closing under performing stores is because they cannibalise store sales to online by offering great choice online then in store meaning customers have no need to visit there stores creating underperforming store from lost of sales. And next only out perform the industry with online. There store estate has been failing well before Covid struck. Yes Next are profitable but only from online.

  4. @Yvonne, if you bothered to read the Full year results you would have seen Next have said stores are fundamental in its Online business as customers love the fact they can collect and drop off parcels via stores and not have to wait for couriers. They did mention a store portfolio as low as 330 – But to say they are contributing to the downfall and Demise of the High stree is utter Twaddle! On the contrary they are doing more to keep it alive than anyone, such as taking over Large sites in Watford and Trafford centre Manchester – your views are just not on point withe real retail world!

  5. @paul.
    I’ve work in retail my whole career and clearly understand the working of it. What most retailers do is use online as an extension of there shop floor. Next haven’t. Next offer a far far greater choice online then in store like I explained earlier. Next are more of an online retail then a physical retailer. To even speculate that there store estate could easily be reduced to 330 store firmly shows there whole business model which is online. I don’t know how using stores for BOPIS & returns would financially be viable long term. Also shutting up over 200 stores will create further significant job losses from the high street in all sectors from the retail assistant to the cleaners and maintenance people. Also leaves the high street with further empty units! Further demise of the high street which is caused from a company focusing solely online! My whole point. How is shutting 200 + stores a company not having a knock in effect to the high street? Which I am full aware is all speculation!

    The two new large units are not solely stocked with next own brand stock. they have had to incorporate brands into the stores to attract custom. Unlike a Primark that can operate a large unit without the need to incorporate other brands generate store interest! Before you say it’s cheap tat. If you don’t use the 4p’s correctly regardless of price you won’t be successful.

    My whole point is if next put the same amount of effort into the store estate as there online then there would be no need to close any stores but next have create such a online operations it is taking sales away from there stores creating underperforming stores. Contributing towards the death of the high street. Why go to a shop when you can shop from the comfort of your own home!? Your clearly missing my point.

  6. @paul.
    Shutting stores and solely focusing online and only using stores for collection and returns is contributing towards the high street decline.

    And to Next opening two new large stores. Both stores are full of concession brands, not to full to the rafters with its own brand stock which is proving my point. Next stores have lost its appeal (apart from its big sale event even then there still stuck with masses of surplus sales stock)due to its online operations. Also if next CEO can come out and and say we could reduce our store estate down to 300 odd stores and still be alright then this is further proving my point. Why would you even speculate that you shut over 180,200 stores if you wasn’t focusing solely online? My whole point is we need shops on the high street to bring back jobs not to be closing stores and focusing online! As the only job that soon be available in retail will be warehouse jobs! If you can’t grasp the simple concept of my argument then there’s no hope.


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