CLOTHING RETAILER Next has warned of clouds over the sector in 2012 despite increasing its full-year dividend by 15 per cent.

A potential worsening of the euro zone sovereign debt crisis, concerns about sluggish job creation and a lack of disposable income among consumers would keep conditions tough for the UK’s retailers, the fashion chain said.

“We have some of the same challenges [for 2012]... Fortunately inflation is abating now, but employment is slow,” David Keens, Next finance director, said.

“Therefore we do not believe that the economy is going to grow to the extent that we will come out of this without another year of difficult consumer environment.”

The gloomy sentiment came as a strong performance from Next’s online Directory business offset a fall in like-for-like sales at its retail division, which trades from 535 stores in Britain and Ireland.

In spite of increasing floor space by an 400,000sq ft, Next’s retail sales shrank 1.4 per cent year on year to £2.19 billion and operating profit from the division fell 1.6 per cent to £324 million.

The decline was offset, however, by shoppers buying their clothing over the internet, with sales at the Directory business growing 16.4 per cent compared with 2010 to £1.1 billion. The strength in online sales boosted total revenues 1.5 per cent to £3.5 billion and lifted pre-tax profit 6.7 per cent to £579.5 million in 2011.

Mr Keens said Next would freeze average prices for 2012 in light of the tough economic conditions facing consumers.

“In the current year we don’t expect to increase our prices at all, on average,” he said. “Manufacturing and commodity prices have stabilised, so we think that this is a year of no price increases.”

Next, which plans to add 300,000sq ft of retail trading space in 2012, shrugged off calls from some industry observers to focus on online sales, mimicking the success of internet clothing retailer Asos.

“Online sales are going to be the bigger driver of growth this year, but our store business and online business work well together. There is a symbiotic relationship between the two,” Mr Keens said. – Copyright The Financial Times Limited 2012