Primark has ruled out more price hikes “beyond those already implemented and planned” to protect sales in the current economic climate.
The parent company of the discount retailer moves to defend its market position as it anticipates that the cost of living problem would reduce customer purchasing power in the coming months.
The discount retailer’s parent firm Associated British Foods (ABF) announced the announcement as it warned of reduced group profits for its next financial year, which begins later this month.
The company predicted that Primark, which has enacted price increases this year to reflect rising energy prices, will experience a spending slowdown as a result of the cost of the living problem affecting clients in its primary UK market.
It was said that, even though recent UK sales had been strong in the current fourth quarter, exceeding those in other European markets, they remained close to pre-COVID levels.
ABF stated that next year’s energy costs, the weak pound and euro relative to the dollar, and its decision to limit future price increases would negatively impact Primark and its profitability.
The price action will be interpreted as an effort to protect market share when consumer demand is tested.
It was disclosed hours before the new government led by Liz Truss planned to announce a freeze on energy prices to protect consumers and companies from future bill surprises.
“We expect sales growth to be driven by the expansion in retail selling space and like-for-like growth coming from both the price increases imposed for autumn/winter this year and those planned for spring/summer next year”, the statement stated.
Primark has already faced the challenges of supply chain disruption, inflation in raw material and energy costs, and increases in labor rates, in addition to the higher purchasing costs resulting from the strengthening of the US dollar against the pound and the euro during the current fiscal year.
In addition to the price hikes described above, there are efforts to improve store labor efficiency and reduce operating costs to alleviate these pressures.
It added: “Next year, we will not impose any additional price increases beyond those that have already been implemented. This decision was made in light of the current turbulent economic climate and the expected reduction in disposable consumer income.
“We feel this decision is in the best interests of Primark and supports our fundamental proposition of everyday affordability and price leadership.”
It was anticipated that Primark’s profit margin for the following year would be lower than the 8.0% operating profit margin anticipated for the second half of the current fiscal year, which concludes on September 17th.
In early trading, the stock price dropped by 8%.
The corporation maintained its outlook for 2021/22, with its food division – which includes Twinings and Allied Bakeries – experiencing greater revenue due to increased demand and ingredient costs.
