FTSE 350: Suffering for fashion

Inflation is also affecting retailers’ supply chains. Most clothing sold in the UK is imported from factories in Asia, and shipping has become up to five times more expensive in the past year, not helped by the Ukraine war’s effect on fuel prices and gridlock at the world’s busiest port in Shanghai. 

Although some are optimistically predicting that the return of major social occasions such as weddings and holidays will drive higher sales, retailers think this won’t be enough to outweigh higher costs. Next (NXT) has cut profit expectations for the year, and said it will pass on extra costs with an average of 8 per cent price hikes across its lines in the second half of 2022, partly as a result of the “chronic labour shortages” it has faced since Brexit. 

Likewise, Dr Martens (DOCS) plans to add £10 to the price tag of its famous boots due to higher raw materials and transport costs. A move away from wholesaling and into direct-to-consumer sales is expected to yield higher profits, but the theory will be put to the test as customers face tougher budgeting choices.

Frasers (FRAS) is taking a different tack. Mike Ashley’s retail outfit has been investing in the luxury end of its business with its Flannels brand, as well as upping its stake in German suit maker Hugo Boss. High-end shoppers usually see the smallest squeeze on their incomes, making the stock potentially more defensive than it’s generally credited to be. This could likewise be a boon for Burberry (BRBY), if it can maintain its profit margins above 17 per cent at a time when rivals are squeezed on all sides. It has already seen fit to reinstate the dividend and announce a £150mn share buyback, but with zero-Covid policies locking down parts of mainland China, this may prove to have been premature.