Next warns of price increases due to ‘unusually high’ wage increases
- Next expects the wage bill to rise by £67 million in the year ending January 2026
- The retailer predicts full-price UK sales will rise by just 1.4% this year
Clothing retailer Next has warned it will increase prices to offset an ‘unusually high’ rise in salary costs.
The retailer expects its wage bill to rise by £67 million in the year ending January 2026, driven by the changes announced by Chancellor Rachel Reeves in the recent October Budget.
From April next year, British companies will have to pay a 15 percent premium on employee salaries above £5,000 a year, instead of the current 13.8 percent levy on wages above £9,100.
At the same time, the national living wage will rise by 77p to £12.21 per hour, and the national minimum wage for 18 to 20 year olds will rise by 16.3 per cent to £10 per hour.
In response, Next plans to increase retail prices of comparable garments by 1 percent, on top of factory price increases, although these currently have 0 percent inflation.
The FTSE 100 group also plans to make some ‘operational efficiencies’, including through ‘new mechanization’ in its stores, warehouses and distribution networks.
More expensive: Clothing retailer Next has warned it will increase prices to offset an ‘unusually high’ rise in salary costs
It noted that consumers were buying fewer but “marginally more expensive” items at its stores, a trend expected to continue next year.
Because of the NI increases, Next predicts that UK full-price sales will grow by just 1.4 percent this financial year, compared to 2.5 percent in the 12 months to December 28.
The Leicester-based company also believes full-price overseas revenues will rise by 14 percent, after rising 24 percent last year following a huge increase in marketing spend.
However, Next still forecasts pre-tax profits to rise 3.6 percent to £1.05 billion, supported by higher full-price orders and £73 million in cost savings.
It told investors: “Beyond the numbers, there is one important message. We believe that the group can achieve turnover growth in the coming year and that profits can grow in line with turnover.’
Thanks to a trading boost from the timing of an end-of-season sell-off, the company has raised its annual pre-tax profit forecast for the year ending January 2025 by £5m to £1.01bn.
Should Next achieve this, it will join Tesco, Marks & Spencer and Screwfix owner Kingfisher as one of only four UK retailers to have achieved annual profits of at least £1 billion.
The company raised its profit forecast three times in three months last year as it continued to shake off the widespread gloom plaguing major retailers.
“Overall, the UK retail sector is between a rock and a hard place,” said Charlie Huggins, head of equities at investment service Wealth Club.
‘Costs are rising, margins are likely to fall and consumers face inflationary pressures.
“Next, however, is well placed to weather the storm. If any retailer can thrive in this environment, it’s probably them.”
Next shares rose 3 per cent to £98.42 on Tuesday morning, taking their gain over the past year to around 16 per cent.
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