Government 'hasn't reacted' to rising inflation says economist
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The store’s owner, Associated British Foods (ABF), said all its businesses had experienced challenges from supply chains and inflation which had increased further with Russia’s invasion of Ukraine. While it has no businesses in either country, energy and commodity prices have soared since the start of the conflict which has heaped pressure on businesses already struggling with rising overheads. ABF’s Chairman, Michael McLintock, said the firm now expects “a greater margin reduction” for this year than previously thought. For Primark some of these costs will now begin to be passed onto consumers.
Chief Executive of ABF George Weston said: “Inflationary pressures are such that we are unable to offset them all with cost savings, and so Primark will implement selective price increases across some of the autumn/winter stock.
“However, we are committed to ensuring our price leadership and everyday affordability, especially in this environment of greater economic uncertainty.”
Businesses are currently facing a difficult dilemma of how to handle rising operating costs with concerns passing on too bigger price rises could put consumers off, particularly given the growing cost of living crisis.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, noted: “This is a tricky manoeuvre to get right given that fans flock to Primark’s for high fashion at cheap prices and instead of piling clothes high in baskets they may be more cautious which could hit volumes.
“Even so the company is confident it will stay well placed in the value proposition and reckons it can make progress in adjusted profits despite the pressures ahead.”
ABF has also been forced to implement price rises across its food ranges, blaming “increasing inflationary pressures in many areas including raw materials, commodities, supply chain and energy.”
The company currently includes popular brands such as Twinings, Kingsmill and Ryvita.
ABF’s Finance Director John Bason insisted however that Primark would keep its pledge of not raising prices for spring/summer stock.
In comments to Reuters he declined to say how much autumn and winter’s price rises might be but insisted the firm would “ensure that we are the best value around.”
Rival retailer Next has previously revealed it will raise prices in the second half of this year across both its fashion and homeware ranges with these increasing 6.5 percent and 13 percent respectively.
ABF’s share price fell 5.5 percent on today’s results despite news sales had grown year on year and revenue from food increased.
Keith Bowman, Investment Analyst at interactive investor, noted: “The lack of a significant online presence over the course of the pandemic contrasts with that of clothing rival Next, whilst economic uncertainty and geopolitical tensions continue to warrant consideration.
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“On the upside, both overall group sales and operating profit have returned to pre-Covid levels.
“Expansion of the retailing business is being pursued, while an estimated future dividend yield of close to 3 percent is not derisory in a continued environment of low interest rates.”
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