Next warns of value hikes on account of ‘unusually excessive’ wage invoice rise

Clothing retailer Next has warned it will hike prices to help offset an ‘unusually high’ jump in salary costs.

The high street retailer expects its wage bill to grow by £67million in the year ending January 2026, driven by changes announced by Chancellor Rachel Reeves in the recent October Budget.

From next April, UK companies are set to pay a 15 per cent National Insurance rate on employee salaries exceeding £5,000 per year, instead of the current 13.8 per cent levy on wages above £9,100.

At the same time, the National Living Wage will go up by 77p to £12.21 per hour, and the National Minimum Wage for 18 to 20-year-olds will soar by 16.3 per cent to £10 per hour.

In response, Next plans to boost selling prices on like-for-like garments by 1 per cent over and above factory gate price rises, although these are currently at 0 per cent inflation.

The FTSE 100 group also intends to make some ‘operational efficiencies,’ including through ‘new mechanisation’ at its stores, warehouses, and distribution networks.

More expensive: Clothing retailer Next has warned it will hike prices to help offset an ‘unusually high’ jump in salary costs

It noted that consumers were purchasing fewer but ‘marginally more expensive’ items from its shops, a trend it expects will remain into next year.

Because of the NI hikes, Next forecasts its UK full-price sales growing by just 1.4 per cent this financial year, compared to 2.5 per cent in the 12 months to 28 December.

The Leicester-based firm also believes overseas full-price revenues will rise by 14 per cent, having soared by 24 per cent last year following a huge boost in marketing expenditure.

However, Next still predicts pre-tax profits will expand by 3.6 per cent to £1.05billion, supported by higher full-price orders and £73million in cost savings.

It told investors: ‘Standing back from the numbers, there is one important message. We believe that the group can deliver sales growth in the year ahead, and we can grow profits in line with sales.’

Thanks to a trading boost from the timing of an end-of-season sale, the business has upgraded its annual pre-tax profits guidance for the year ending January 2025 by £5million to £1.01billion. 

Should Next achieve this, it will join Tesco, Marks & Spencer, and Screwfix owner Kingfisher as one of only four British retailers to have achieved at least £1billion in annual profits.

The company upgraded its earnings forecast three times in three months last year as it continued to shrug off the widespread gloom affecting high street retailers.

‘Overall, the UK retail sector sits between a rock and a hard place,’ said Charlie Huggins, head of equities at investment service Wealth Club.

‘Costs are going up, margins are likely to come down, and consumers face an inflationary squeeze. 

‘Next, though, is well placed to weather the storm. If any retailer can thrive in this environment, it’s probably them.’

Next shares were 3 per cent up at £98.42 on Tuesday morning, taking their gains over the past year to around 16 per cent.