Shoppers may experience a surge in clothing prices this fall if the Middle East turmoil persists, according to the chief executive of fashion powerhouse Next. Simon Wolfson expressed concerns that the ongoing conflict could drive up oil prices, leading to potential price hikes by summer. However, he highlighted that the real impact on prices would likely be felt later in the year due to escalating energy expenses for manufacturers in Asia and other global regions.
Lord Wolfson, a Conservative peer, indicated that Next could witness a 1% to 2% price increase by June to offset heightened transportation and energy costs. He further noted that if manufacturing costs rise, which is probable if the conflict endures, significant price spikes might occur from September onwards. While he estimated the increase to be between 4% and 10%, the exact impact remains uncertain. Wolfson also suggested that other fashion brands might encounter similar challenges related to manufacturing expenses.
Next is currently operating under the assumption that the conflict will last for three months. The company disclosed a £15 million cost impact from the crisis, attributing it to additional expenses for fuel and air freight due to shipping disruptions and surging oil prices. Despite this, Next anticipates mitigating the impact through savings in other operational areas.
The Middle East conflict, which contributes to approximately 6% of Next’s annual sales, is hindering growth in the region and is expected to affect costs, selling prices, and consumer demand across the broader organization. Despite these challenges, Next reported a 14.5% increase in annual profits, reaching £1.16 billion, surpassing expectations.
Although the risk of higher costs looms, Next revised its profit forecast for the upcoming year to £1.21 billion, contingent on the resolution of the Iran conflict before summer. Lord Wolfson also suggested that the government should not profit excessively from elevated fuel prices, emphasizing that the Treasury should stick to its expected tax revenues rather than gaining more from increased petrol and diesel prices.
The company’s optimistic outlook came alongside its call for a fair approach from the government regarding fuel taxes, urging that any additional revenue generated should not exceed the anticipated amounts. This stance aims to ensure that the government does not capitalize disproportionately on the current fuel price situation.
