Primark’s business model threatened by inflation and energy costs

One of Europe’s most popular clothing chains relies in large part for its concept and business model on offering clothing at low cost prices. This reality may be incompatible with the unstoppable escalation of inflation and energy prices.

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

The newspaper adds that the chain, which is recovering from the pandemic (there are no online stores) and charges clashing costs, is experiencing “unprecedented volatility,” outgoing ABF chief financial officer John Basson, told Bloomberg.

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

In an effort to revamp its digital strategy, the company will start testing a ‘click and collect’ service on baby products at the end of the year – but only in the UK market, and away from the online selling platform.

Recently, the series announce Also partnered with Vintage Wholesale Company to sell vintage clothing, with their own spaces inside some of the stores.