Primark rules out immediate price hikes to protect sales in tough economy | Business newsletter
Primark has ruled out further price increases “beyond what was done and planned”, in an effort to protect sales in a tough economy.
The parent company of discount retailer Associated British Foods (ABF) made the announcement as it warned the group’s profits would be lower for the next financial year, which begins later this month.
The company says it expects Primark, yes make a price increase this year to reflect rising energy costs, in the face of reduced spending due to cost of living crisis targeting customers in the main market is the UK.
It says that although recent UK sales have proven resilient in the current fourth quarter – outperforming sales in broader European destinations – they are still around pre-COVID levels.
The ABF said weak energy bills, pound sterling and euro against the dollar and the decision to limit further price hikes will weigh on Primark and the company’s profits next year.
Price action will be seen as an attempt to protect its market share as buyer demand is tested.
It was revealed hours before the new government led by Liz Truss was about to reveal a frozen energy prices to help protect consumers and businesses from future bill shocks.
“We expect sales growth to be driven by an increase in retail acreage and similar growth driven by both the price increases implemented for this fall/winter and the price increases planned for this year. next spring/summer,” the company said in a statement.
“Primark has been managing the challenges of supply chain disruptions, inflation in raw materials and energy costs and labor rates, along with higher purchasing costs due to a stronger US dollar in the fiscal year. This is against the British pound and the euro.
“To mitigate these pressures, in addition to the aforementioned price increases, there are plans to improve the store’s labor efficiency and reduce operating costs.”
It added: “In light of today’s volatility and the backdrop of a large drop in disposable consumer income, we have decided not to undertake further price increases next year beyond what has already been done and planned.
“We believe this decision is in Primark’s best interest and supports our core proposition of daily affordability and price leadership.”
Primark’s profit margin for the coming year is expected to be lower than the 8.0% operating margin projected for the second half of the current financial year, which ends September 17.
Shares fell 8% in early trades.
The Group maintained its outlook for 2021/22, with the food business – which includes Twinings and Allied Bakeries – posting higher revenue due to higher demand and raw material prices.
