From homes and cars to baby diapers and bacon, there isn't a single expense that hasn't yet felt the toll of inflation — and fast fashion, or the $10 jeans and t-shirts that many rely on to clothe their families, is one of the latest victims of higher material, shipping and labor costs.
Primark, the retail subsidiary of Associated British Foods (ASBFF) , has long been associated with extremely low prices — a pair of jeans can go for $20 while a sweater currently sells for $12. The brand, which started out in Ireland, has rapidly been expanding to the US with nearly 60 stores.
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Those Cheap Clothes Are Getting More Expensive
Even though sales grew by 59% in the quarter leading up to March 5, Primark announced that it would need to raise prices to make up for rising shipping and material costs. At 10%, the full-year operating budget is going to be lower than the 11.7% expected for the first half of the year.
"With increasing inflationary pressure and dollar strengthening, we will implement selective price increases across some of our autumn/winter stock," ABF said in the April 26 earnings call.
The brand did not specify how much of a price hike they plan on adding or what kinds of clothing would be most affected. Next NEXT, a rival British fast fashion brand, had earlier raised prices by an average of 6.5% for fashion and 13% for homeware items.
"We will absolutely ensure that we are the best value around, that's not going to change," John Benson, Primark's head of finance, told Reuters.
Primark committed to not implementing the increases for the current spring/summer stock but did not comment on whether all of the autumn/winter inventory would be affected.
Just How Bad Is Inflation, Really?
The reason for the increases have much to do with sweeping inflation — prices overall rose by a 40-year high of 7.9% in March while many of the materials that go into making clothes and home hardware items were even more prone to hikes.
Data from the Labor Department shows that apparel and footwear costs are up 6.8% from last year.
This can spell difficulties for consumers, particularly those who already rely on the cheapest available food or clothing to make ends meet. Stores offering the cheapest option have been seeing the most dramatic price hikes.
Grocery costs at dollar stores spiked by 14.3% from 2021 and 22.5% from 2020 while traffic at Family Dollar and Dollar General (DG) has been up a respective 20.4% and 28.2% since 2019. Dollar Tree (DLTR) in January bumped most of its prices up 25%, from $1 to $1.25, in all of its stores. In other words, many people are relying on these low-cost stores to get their essentials but seeing that their dollar stretches less far there as well.
As such increases are hitting the industry pretty uniformly, it is unlikely that price hikes will affect Primark's sales by much as it remains one of the cheapest clothing options out there. That said, ABF stock fell by nearly 8% after the earnings call.
"Primark will have to grapple with higher costs, for example in cotton and energy, while keeping its commitment to not raise prices," Andrea Felsted recently wrote for Bloomberg. "[...] It also risks being caught in other crosshairs, from the rise of Shein Group Inc., which makes even faster fashion, to increased environmental consciousness, which could see young people turn away from more disposable clothing."
