Primark’s business model threatened by inflation and energy costs

One of Europe’s most popular clothing chains bases much of its concept and business model on offering low-cost clothing. This reality may be incompatible with the inexorable escalation of inflation and energy prices.

According to a report byThe Economist“, Associated British Foods (ABF), the group that owns Primark, has warned that profits will fall in the next financial year due to rising production costs and the strengthening of the dollar, the currency in which it buys most of its products. its clothes pound, the currency in which the brand presents its results, is at its lowest value since 1985. Last week, the group’s shares were already down 8% after this announcement.

The newspaper adds that the chain, recovering from the pandemic (there are no online stores) and blaming the cost shock, is experiencing “unprecedented volatility”, said ABF’s outgoing chief financial officer John Bason, at Bloomberg.

Its operating margin is expected to fall next year and some lines, such as the back-to-school line, have already been frozen. Consumption in the UK is also expected to decline in the coming months, which could worsen the situation.

In order to overhaul its digital strategy, the company will test the “click and collect” service on children’s products at the end of the year – but only on the British market, and far from an online sales platform.

Recently, the channel announcement also a partnership with the Vintage Wholesale Company to sell vintage clothing, with their own spaces inside certain stores.

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