Next has said it will increase prices by 1% this year to help offset a £67m rise in wage costs driven by budget tax changes, which it expects will slow UK sales growth this year.
The fashion and homewares retailer said the tax increases for employers announced by the government in October and their potential impact on prices and the job market “begin to filter through into the economy”.
However, the Next chief executive, Simon Wolfson, said the alterations to price and sales expectations were “not a big change” and he did not think the budget changes had hit trading in the run-up to Christmas.
The group upped its profit forecasts by £5m after better than expected sales in the key festive trading period.
Lord Wolfson said mild weather, which hit sales of coats, boots and knitwear, and other factors were likely to have had more impact. He said the “reporting of the dampening was far greater than the reality” because some had misunderstood industry data as the later timing of Black Friday and Christmas falling later in the week meant there was more of a last-minute rush.
Wolfson said he did not expect to cut jobs but planned to use more mechanisation in warehouses and shops to offset the rising costs from changes to national insurance and the legal minimum wage, which particularly affect the cost of hiring the lowest-paid workers.
He said the group was considering using automated tills in stores, for example, which it had not previously planned to do.
The 1% price increase comes after Next raised prices by more than 7% in the spring of 2023 and 2% that autumn. However, it said last year that prices were coming down as product and distribution costs reduced.
In a detailed report, Wolfson said a trend for shoppers to buy fewer, marginally more expensive items was also expected to continue through 2025, helping offset higher costs.
The retailer’s warning on price rises comes after it reported a 5.7% increase in sales in the nine weeks to 28 December, excluding the effect of reporting fewer days of its post-Christmas discount sale.
Sales online, including Next branded items and its Label selection of other well-known brands, rose by 6.1%, and overseas online sales were up by more than 30%, but sales in UK stores fell by 2.1%.
It expects annual profits in the year to the end of January to rise 10% to just over £1bn for the first time.
However, the company said UK sales growth would slow to 1.4% in 2025, from 2.5% last year, because of concerns about the impact of tax increases. Overseas growth is also expected to moderate as the company reduces marketing spend. Shares rose 3.5% on Tuesday following the results, making it the second biggest riser on the FTSE 100.
Next is expected to be among the festive winners as fashion retailers had been expected to have endured a tough end to the year as a mild autumn led to widespread discounting across the high street.
The retailer is known for holding out on discounting until late in the season and so may have benefited more from the late arrival of colder weather as well as its strong online service.
Marks & Spencer will report on its Christmas performance later this week and is also expected to have outperformed smaller rivals.
