Retailers Say Protracted Iran War Will Drive Up Prices

As CNBC reported Thursday (March 25), among the companies sounding this warning is British clothing seller Next, which has accounted for $20 million in added costs that could materialize due to the conflict, like fuel and air freight, assuming the fighting lasts for three months.

“Beyond the next three months, if we see these costs persist, then we will begin to pass costs through as higher pricing,” the company said when reporting earnings Thursday.

The report noted that a protracted war in the Persian Gulf could be a two-fold problem for retailers, increasing inflationary pressures and interrupting supply chains, while also weakening demand among consumers facing a higher cost of living.

Another retailer that reported earnings Thursday, H&M, said that “current geopolitical instability in the Middle East could, if extended, result in slightly additional cost pressure,” CNBC added.

The Swedish company has a relatively low exposure to the Middle East, with roughly 3% of its stores in the region and only a small part of its supply chain dependent on air travel.

But if the war drags on, there could be a “significant impact” on consumer behavior, H&M CEO Daniel Ervér told analysts during an earnings call.

CNBC added that analysts say that discretionary-heavy retailers are more likely to be negatively affected by the war, as it is causing more uncertainty among already-strained shoppers.

As PYMNTS wrote earlier this month, price hikes on day-to-day necessities such as groceries, housing, insurance and transportation have fundamentally transformed the way households look at their spending decisions.

“Affordability conversations used to revolve around discretionary choices such as vacations or large purchases,” that report said. “Today, they increasingly center on managing cash flow and covering essentials.”

Research by PYMNTS Intelligence shows that around 60% to 75% of consumers across generations said they are cutting back on everyday spending, with many avoiding large purchases. Younger consumers were more likely to add additional tactics.

Roughly 20% of millennials, bridge millennials and Generation Z consumers said they employ four or more strategies simultaneously, such as taking on extra work, tapping installment plans or borrowing money from friends and family.

However, the number of consumers who said their coping strategies were extremely or very effective dropped to 25%, compared to 34% just three months earlier.