The Middle East price shock hasn’t hit Next – yet | Nils Pratley

The Middle East price shock hasn’t hit Next – yet Nils Pratley Timing lags in the retail industry mean the impact of fuel and fabric inflation may not be felt until autumn ranges land I n the context of Next, which has just reported full-year pre-tax profits of £1.16bn , an estimated £15m of extra fuel and air freight costs arising from the Middle East conflict is tiny. The sum, which in any case assumes disruption lasts three months, can be lost in the wash, or more precisely “offset by savings elsewhere”. The chief executive, Simon Wolfson, a boss who tends to err on the side of caution when guiding on profits, saw no reason not to add £8m to this year’s number as a mechanical read-through from last year’s outcome. If there wasn’t a war on, one can assume there would have been a proper profit upgrade. After all, trading seems to have been going like a train up until late-February – “encouraging” in the UK and “strong” overseas. Thus the sole – but enormous – asterisk over these results was the impact if the conflict drags on. Wolfson obviously has no greater insight on duration and long-term implications than anyone else, and said so. “As yet, we have no feel for the medium-term effects on supply chain resilience, freight rates, factory gate prices and consumer demand,” he said. If higher costs persist, Next will put up prices – but that remains “a contingency not a plan”. Come back in May for the first-quarter update for a clearer view. But there were, perhaps, two nuanced insights amid the uncertainty. First, the idea that consumer confidence has already “collapsed”, which is what the British Retail Consortium said this week , may be overdoing things. Wolfson said he had not yet seen a hit to sentiment. “If energy bills and the [higher costs] feed through to prices that is when they will respond,” he said. All retailers are different, but the same point is made privately by others in consumer-facing businesses: UK consumers tend to react to the arrival of higher...