Next has emerged as the first major retailer to provide an update on its Christmas trading, showcasing a robust performance despite escalating costs. The company reported a 6% increase in sales for the nine weeks leading up to December 28, indicating strong consumer interest, particularly in online shopping.
The rise in sales was primarily driven by Next's online trade, which outpaced physical store performance. While UK online sales surged by 6.1%, the retailer experienced a 2.1% decline in in-store purchases. This shift underscores the ongoing trend of consumers gravitating towards digital shopping platforms, particularly during the holiday season.
Looking ahead, Next expects profits to rise by 3.6%, projecting earnings to exceed £1 billion in the upcoming year. However, this optimistic outlook comes amid rising operational costs. The retailer anticipates implementing price increases on certain clothing items to counterbalance an "unusually high" £73 million increase in staff wages and taxes. Specifically, Next plans to raise prices by approximately 1%, a figure that remains below the current inflation rate.
Next's current annual wage bill stands at around £900 million, and the company has cited the measures announced in the recent autumn Budget as contributing factors to increased costs. These include higher National Insurance payments for employers, with the National Living Wage set to rise from £11.44 to £12.21 per hour starting in April. The Office for Budget Responsibility indicated that the majority of this increase in National Insurance Contributions would likely be felt through reduced worker pay rises and elevated prices.
In a broader context, over half of companies surveyed by the British Chambers of Commerce plan to raise prices within the next three months to manage heightened costs. Next described its decision to raise prices as "unwelcome," reflecting the challenging economic landscape faced by retailers.
Next had previously warned about potential price increases and job losses due to Labour's Budget measures. In November, the company joined a collective of large retailers that communicated these concerns directly to Chancellor Rachel Reeves.
Rachel Reeves responded by stating her government's commitment to addressing fiscal challenges, saying they "decided the right thing to do was to ask businesses and the wealthiest in our country to pay a bit more."
Next has emphasized that while consumers may not be spending significantly more overall, they are purchasing fewer items that are slightly more expensive. This nuanced shift highlights changing consumer behavior amid inflationary pressures.
"To be clear, consumers are not necessarily spending more overall, but buying fewer, marginally more expensive items." – Next