Cost of living: Primark holds back from raising prices for a year despite costs soaring
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Parent company Associated British Foods said that, as customers tighten their belts, it wants to make sure they still see the brand as a cheap alternative to other high street brands. As a result the chain will not impose any price rises on its ranges until next summer, apart from those it has already implemented and planned.
AB Foods boss George Weston said: “Primark has faced significant input cost inflation and sharply moving currency exchange rates. We have decided to hold prices for the new financial year at the levels already implemented and planned, and to stand by our customers, rather than set pricing against these highly volatile input costs and exchange rates.”
The business said the decision is “in the best interests of Primark”, which will support its “everyday affordability and price leadership” and help it grow market share. Weston added: “Sales, margin and profits at Primark increased significantly as more normal customer behaviour resumed after the pandemic. Significant progress was made in building out Primark’s digital capability, which will be a key element in the future development of Primark.”
Sophie Lund-Yates, equity analyst at investment platform Hargreaves Lansdown, said: “Primark is experiencing significant cost inflation and a very uncertain demand backdrop. Despite this, it’s vowed to keep prices steady following a recent round of increases. This is an integral part of the group’s ability to keep customers coming through the doors. Without being the affordable name on the high street, Primark loses almost all its bargaining power. Primark is well aware that pushing prices too far will do nothing but alienate its core customers.”
The retailer is currently trialling click-and-collect in 25 shops. Primark like-for-like sales have broadly returned to pre-Covid levels in the UK, but remain weaker in continental Europe. Despite rising costs, it was a good year for AB Foods, which also includes British Sugar. The business said revenue jumped by more than a fifth to £17 billion in the year to September 17, as pre-tax profit increased by nearly half to £1.1bn.
The food business is expected to grow sales significantly this year as it hikes prices for customers, and AB Foods will also bring in some extra cash from the already planned price rises at Primark. But adjusted operating profit is expected to fall as the business faces cost increases.
Adam Vettese, analyst at social investing network eToro, said: “Rapid group revenue and profit growth has allowed ABF to significantly hike its dividend and to announce a major £500 million share buy-back programme, which will please shareholders and provide upward pressure to its share price. However, while the UK has performed well, continental Europe remains a concern, particularly with it having to take an impairment charge of more than £200m against its German business. Looking forward, Primark’s eagerly-awaited new website and click and collect trial could be a game changer for the retailer, hauling its business model one step into the 21st century.”