Next issues inflation warning – shoppers should expect imminent price hike
Hospitality: Interest rates to rise further to match inflation
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In a trading statement today the store said its UK operating costs had increased considerably, mainly due to wage inflation. In 2021’s Autumn Budget it was announced the National Living Wage would rise 6.6 percent to £9.50 an hour. Next also reports rising costs of goods and manufacturing. It anticipates its Spring and Summer collections will see prices rise 3.7 percent on like for like sales.
As further cost rises bite in the year ahead, the Autumn and Winter collections will see prices rise six percent.
The store said it expected consumers to end up “Choosing to buy slightly fewer items, but at moderately higher price points.”
CEO Simon Wolfson said: “The key level of uncertainty is the inflationary environment.
“I have been in business for 30 years and I don’t think I have ever been through another period of economy-wide inflation on this scale.”
Despite the inflation warnings Next has upgraded its pre-tax profit forecast by an extra £22m following a bumper Christmas period.
The eight weeks to 25th December saw full-price sales up 20 percent on pre-pandemic levels.
Next is traditionally seen as a bellwether for the strength of British retail but seems to be pushing ahead of rivals.
Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown, commented: “There aren’t many bricks and mortar retailers dishing out special dividends or upgrading guidance multiple times over.
“Next’s impressive performance has partly been down to returning demand for formal and occasionwear, as customers got ready for a festive season with a bit more cheer compared to last year.”
Key to its success has been online sales which were up 49 percent for the year in 2021 on pre-pandemic levels.
Next has also given people the option of buying other brands through its online offering, a move also made by Marks and Spencer.
AJ Bell Investment Director Russ Mould explained: “This is a win/win situation for everyone involved.
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“Next has more customers using its website, it earns money either by selling its own products or from commission and service fees for third party products, and the customer experience is greatly improved.”
However, he warned 2022 was shaping to be a “more challenging year” for Next with inflation weighing on spending power.
As well as Next’s own price increases, consumers will be juggling rising energy prices, higher interest rates and a hike in National Insurance in April.
Mr Mould said: “There is still a real risk that a lot of people are going to look hard at their finances and scale back on spending, particularly if the cost of goods in the shops is also going up.”
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