Primark has decided to maintain the current prices of its clothing for the upcoming spring season. This decision comes after a price increase in 2023, as the retailer recognizes that consumer spending is still uncertain and some of its expenses have decreased.
The budget-friendly clothing brand reported a 3.8% increase in sales at their existing UK stores during the 16-week period ending on January 6th. This growth can be attributed to a 3% increase in prices and an increase in customers purchasing their slightly more expensive The Edit and Rita Ora collections.
Worldwide, Primark’s revenue increased by 7.3% to £3.4 billion during this time, thanks to new store locations in the United States and Europe.
Retail sales of apparel decreased due to mild autumn temperatures and limited consumer spending, causing shoppers to delay purchases. However, Primark reported a significant increase in sales right before Christmas due to the arrival of colder weather.
“The ability of consumers to influence prices is still weak,” stated Eoin Tonge, the financial director of Associated British Foods (ABF), the parent company of Primark. “The global consumer market is currently facing challenges and is not in a strong position. It is even more difficult outside of the UK.”
The rate of expansion for Primark decreased in the fall season, however, the retailer’s sales in physical stores served as further evidence of the success of brick-and-mortar stores over online clothing retailers during the holiday season.
During the holiday season, larger retailers like Marks & Spencer and Next, who have the ability to fulfill online orders and have a wide range of physical stores, performed well. However, smaller retailers who heavily rely on online traffic or have less recognizable brands faced challenges.
On Tuesday, Boohoo, a popular fast fashion website, announced that its Christmas sales were in line with predictions, despite a projected drop of up to 17% due to inflation. This can be attributed to fierce competition from rapidly expanding Chinese retailers like Shein, as well as a resurgence in high street shopping, particularly among the youth demographic.
The Quiz company reported that nearly one third of its sales come from online purchases. However, in December, sales were 11% lower compared to the previous year. The company attributed this decline to inflation causing a decrease in consumer demand, resulting in lower foot traffic both in physical stores and on their website.
Tonge mentioned that Primark has achieved its highest market share in the UK thus far, as budget-conscious consumers have flocked to the low-cost retailer. The company’s success was aided by a new online stock-checking feature, as well as the option to pick up certain products in over 50 UK stores. In addition, popular collections like the Rita Ora line have contributed to Primark’s growth.
Tonge stated that our average selling price has been on the rise for approximately one year. However, we have reached the peak and do not anticipate any further increases in price. The future uncertainty lies in whether we will witness a decline in prices.
The price of materials, like cotton, and the production of goods is decreasing, but the expense of labor is rising. Tonge stated that increases in wages will have a larger effect than the added cost of shipping due to container ships having to detour around Africa because of attacks on ships near Yemen. These incidents are dissuading many from passing through the Red Sea.
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According to Tonge, this situation is different from the issues faced by ports during the Covid pandemic. It only affects one shipping route and most companies have been able to switch to a different line. While it does add two weeks to the transit time and increases costs, Tonge believes it will not significantly impact prices in the near future. However, he acknowledged that it will require some adjustments on their part.
ABF promised City analysts that Primark could stick to its plan to rebuild profit margins after last year’s drop, despite the freight issue, as analysts at Barclays said: “We doubt the impact would exceed £20m unless the situation in the Red Sea were to significantly worsen.”
Tonge noted that there was still inflation in the food market, but he anticipated a decline in prices by the end of 2024.
“He mentioned that there has been a considerable decrease in commodities and energy, which has greatly influenced inflation.”
He stated that despite increasing labor expenses, the ongoing trend of decreasing food inflation will result in a period of deflation.
Source: theguardian.com
