Next says Middle East conflict could add £15m to costs and push up prices | Next
Next said the war in the Middle East would add £15 million to its cost, assuming it lasted three months, and prices would have to rise if the conflict continued beyond that.
The UK clothing and homewares retailer said it was currently offsetting additional costs on fuel and air transport with savings elsewhere and did not expect any impact on its profits next year.
Instead, the company raised its profit forecast for 2027 by £8 million to £1.2 billion, following better-than-expected sales in January this year. It was stated that the guidance was increased despite the expectation that sales in the Middle East, which constitutes 6% of the group’s turnover, may be negatively affected by the summer.
This comes after pre-tax profits rose 14.5% to £1.16bn in January as sales rose almost 11% to £7bn.
Next said of the Middle East conflict in its annual trade update: “We have no idea about the medium-term impacts on supply chain flexibility, freight rates, ex-factory prices and consumer demand. It will depend on how long the conflict lasts and how much permanent damage is done to the world’s energy infrastructure.”
Next said it had increased the amount of stock it holds by 6% to protect against delays in its supply chain, but said this was partly down to the development of its warehouses.
The group’s sales were boosted by strong sales overseas, particularly through third-party websites such as Zalando and newly acquired brands such as Cath Kidston. But the group has also increased sales in UK stores and online.
Next said it is focusing on reducing costs through greater use of artificial intelligence in warehouse operations as part of its plan for the coming year. It said it already uses AI technology to help with sales forecasts and get accurate discounts and size range in stores and online.
The company said in a lengthy report: “It seems to us at Next that rather than replacing people’s jobs, AI will replace them, making them much more effective and taking away many of the tasks they least enjoy. People will need to adapt and change, but Next employees are generally good at that.”
It was stated that the jobs most affected were “routine machining jobs”.
Next added: “If we are reflective of the wider economy, those who have jobs need not worry too much; the challenge will be for those who want to join the workforce.”
