High-street fashion and homeware giant Next has issued a stark warning to shoppers, revealing that the ongoing conflict in Iran has already inflicted a substantial £15 million cost hit on its operations. The retailer cautions that if hostilities persist, these escalating expenses may inevitably be passed on to consumers through higher prices.
Financial Impact and Contingency Plans
Next has allocated the £15 million sum to cover additional costs primarily related to fuel and air freight, driven by significant shipping disruptions and soaring oil prices stemming from the Middle East turmoil. Currently, the company is absorbing these costs through savings elsewhere in its business, but this strategy may not be sustainable in the long term.
Chief executive Lord Simon Wolfson stated that Next is operating under the assumption that the conflict will resolve within three months. However, he emphasised that a more protracted war would likely necessitate passing costs through to consumers. "We will begin to pass costs through as higher pricing," he said, adding, "But for today that remains a contingency, not a plan."
Regional and Global Sales Implications
The Middle East, a region contributing approximately 6 per cent of Next's annual sales, is already experiencing stunted growth due to the conflict. The company has revised its guidance for international turnover downward to 14.3 per cent for the current financial year, a reduction from the previously forecast 16.5 per cent, citing direct impacts from the Iran war on its overseas business.
In contrast, Next has increased its guidance for UK sales from 1.6 per cent to 2.2 per cent, buoyed by an "encouraging sales performance" in the first eight weeks of the financial year. Overall, the group expects total sales across the business to rise by 4.5 per cent, aligning with previous guidance for 2026-27.
Profit Outlook and Future Uncertainties
Despite the challenges, Next reported stronger-than-expected annual profits, which climbed 14.5 per cent to £1.16 billion on a pro forma 52-week basis. The company has subsequently raised its profit guidance for the year ahead to £1.21 billion, though this forecast is contingent on the Iran conflict concluding before the summer.
The profit outlook is £8 million higher than previously forecast, attributed to better-than-expected full-price sales in January and an improved end-of-season clearance. However, Next cautioned that the Iran war could still derail consumer demand and lead to higher costs, potentially suppressing sales.
Lord Wolfson highlighted the uncertainties ahead, stating, "As yet, we have no feel for the medium-term effects on supply chain resilience, freight rates, factory gate prices and consumer demand. Much will depend on how long the conflict persists, and how much permanent damage is done to the world’s energy infrastructure."
He further explained, "If the conflict persists, the costs are likely to be reflected in higher prices to consumers and disruption to our supply chain, both of which are likely to suppress sales." This disclosure underscores the broader economic challenges posed by geopolitical tensions, as retailers like Next navigate volatile market conditions while striving to maintain profitability and consumer affordability.
