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No deal Brexit: Next and the retail sector's reaction to a potential cliff edge 

Next’s contingency plans for a no-deal break from the European Union will have buoyed staunch Brexiteers.
While pockets of the retail sector have cried foul over the damage such a scenario could cause, chief executive Lord Wolfson has played down the prospect of a major blow to Next.
A no-deal outcome, where no formal trade agreement is reached between the UK and EU, would not pose a “material threat” to Next’s operations or profitability, the company said. In a worst case scenario, price tags on its products would rise, but only by 0.4pc.
This was not an example of Lord Wolfson soft-soaping the issue. While he openly supported Brexit - believing the move could spark an “economic renaissance for Britain” - this standpoint comes from the company. The Next board, Lord Wolfson said, was made up of Remainers and Leavers alike.
In a ten page analysis accompanying its half-year results, Next outlined its plans for a no-deal Brexit while backing calls for a transition period and a free trade agreement with the EU.
The lion’s share of its concerns centre on the disruption at the borders and threat of tax rise linked to higher tariffs.
"If the ports seize up, it will be a problem," Lord Wolfson says. "In fashion you're always selling out of the best-sellers. The ports that will have the biggest problems will be the ones having more EU goods, so basically Dover."
While a jam at the ports represents “the biggest risk” to the business, Next still believes the current measures it has in place should prevent significant delays.
“Goods arriving from Portugal currently incur no delay other than a passport check [...] so there is no intrinsic reason why our EU goods should spend very much longer in customs that they presently do as a result of a no-deal Brexit,” the retailer added.
No deal Brexit: Next and the retail sector's reaction to a potential cliff edge 

Lord Wolfson, chief executive of Next
Meanwhile, if the UK should fall back on World Trade Organisation rules, Next has urged the Government to prevent tax rises for shoppers by rebalancing tariffs across the board. It believes that any increase in duty revenues coming from the EU goods should be used to pay for lower overall tariffs.
Next has called on the Government to provide clarity on the issue, adding that “even the most general indication” would allow the chain to avoid increasing prices to offset a potential rise in custom rates.
However, the company’s conclusions must be seen within the context of its current trade levels with the EU and the measures it has in place to safeguard the business. Around 10pc of the retailer’s stock is purchased from the EU and Turkey, meaning its exposure to potential disruption is less than other retailers. Next has also taken steps to shield itself against fluctuations in the pound.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “As a response to the uncertainty of Brexit, Next has hedged its exposure to the pound for products it intends to sell up to January 2020, so does not expect any cost price inflation over this period, irrespective of how the currency moves.”
Given the bullish nature of Next’s no-deal assessment, should the wider retail sector be feeling more positive about a no-deal Brexit.
Patrick O’Brien, GlobalData’s UK retail research director, is sceptical about Next’s conclusions. He says a no-deal scenario could be more severe than the company is anticipating because it does not take into account the impact on demand.
“My concern is that have they not factored in the reaction higher food costs would have on the consumer in the event of a no deal - and the knock on effect that will have on how much people will spend on non-essential items. If we have headlines everyday about lorries being backed up and the pound falling, consumer confidence will take a major hit. As a result, all of non-essentials sector are going to really struggle in 2019.”    
Next’s response to a no-deal Brexit may be confident, but it would be a danger to read its analysis as reflective of the retail sector as a whole. Heavyweights in Britain’s ?29bn food and drink industry have issued stark warnings about a no-deal Brexit and the drastic measures companies would have to take.
No deal Brexit: Next and the retail sector's reaction to a potential cliff edge 

A no-deal could pose a threat to Next if there is disruption at the ports
Sainsbury’s boss Mike Coupe has warned that any disruption at British ports would result in fresh food being left rotting at the border. The UK sources around a 30pc of its food from the European Union and it is the nation’s largest export.
The British Retail Consortium has also expressed concern about how food retailers would cope. It said stockpiling fresh produce was simply not possible, while many retailers would not have the warehousing or facilities to build up emergency stock of non-fresh items
Next’s analysis provides some room for optimism in the event of a no-deal Brexit. But given the diverse range of companies that make up the retail sector, it would be a danger to assume all businesses would be able to demonstrate the same level of resilience.
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