Primark set for major expansion – fears of rocketing costs after boss admits pressure
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Rory O'Connor says high street to take a heavy hit at Christmas
The retailer, who so far has resisted trading online, plans to open new stores in the UK as well as in growth markets abroad such as Italy and Spain. Although like for like sales were down 12 percent on pre-pandemic levels profits grew 15 percent to reach £415million. Profits are expected to continue to improve into next year with a special dividend being paid to shareholders who previously did not receive one last year to conserve cash. CEO of Associated British Foods, who owns Primark, George Weston said the results demonstrate the “resilience” of the group adding: “Primark delivered a good performance in the face of continued disruption to trading caused by the pandemic. It also unveiled its wide-reaching sustainability strategy with the aim of making more sustainable fashion affordable for all. Although the possibility of further trading restrictions cannot be ruled out, we expect Primark to deliver a much improved margin and profit next year.”
Across the food sections of its business ABF also reported strong results with profits up 10 percent.
However it comes with a warning of the pressures currently facing retailers who are grappling with rising costs and supply chain issues.
Mr Weston admitted: “In recent weeks, we have experienced further supply chain disruption including temporary closures at dispatch ports, limited sea container availability and congestion at destination ports.”
He was however adamant prices for Primark customers will not be affected telling the PA news agency: “We haven’t increased prices at Primark over the past 10 years and we won’t do so this year.”
The picture is more mixed across the rest of ABF though with the firm’s grocery operations proving vulnerable.
ABF chairman Michael McLintock said: “We are seeing significant cost increases in energy, logistics and commodities in addition to the impact of widely reported port congestion and road freight limitations.”
“Our businesses are working to offset the impact of these through cost savings.”
“Where necessary, our food businesses will also implement price increases.”
Costs have already had to increase on some brands across its grocery business including Kingsmill, Twinnings and Ryvita.
Although Primark is still not selling directly online it has announced plans for a new website enabling people to browse products before they come into the store.
Primark says this will show around 70 percent of the total range with richer product imagery and information than the current website which only shows around 20 percent of products.
Primark’s business model has been questioned in the past given the strong growth in online sales for other retailers however Mr Weston said his confidence in the model was “unaltered.”
He added: “There is strong supporting evidence that, for a substantial share of customers, the in-store shopping experience will have enduring appeal.”
“Primark is uniquely placed on the High Street to take advantage of this as it continually evolves its store design and in-store services and expands into new product ranges attracting existing and new customers to the business.”
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AJ Bell Investment Director Russ Mould commented: “It continues to roll out a broader range of products which is helping to diversify sales so that it isn’t overly-reliant on selling high volumes of t-shirts, underwear and dresses.
“Cookware, ceramics, rugs and outdoor items like boots and waterproof jackets increasingly feature in its stores, widening the appeal of Primark as a brand.
“Primark is one of the few brands which still draws in the crowds on the high street which says something about how successful the business has been.”
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