The owner of Primark has saidthe clothing chain will have to raise prices on its autumn and winter ranges as it is no longer able to offset cost increases with savings.
Associated British Foods (ABF) said its food businesses, which include Twinings, Kingsmill and Ryvita, face increasing inflationary pressure in many areas including raw materials, commodities, energy and supply chain costs made worse by the war in Ukraine.
“We have not seen such a scale of inflation in our major markets in recent times,” the company said in its half-year statement issued on Tuesday.
ABF said it expected profit margins would be hit by more than expected at both Primark and its food businesses over the coming months and it did not expect a recovery until next year.
George Weston, the ABF chief executive, said the group was taking measures to mitigate rising costs but added: “Looking further ahead, inflationary pressures are such that we are unable to offset them all with cost savings, and so Primark will implement selective price increases across some of the autumn/winter stock. However, we are committed to ensuring our price leadership and everyday affordability, especially in this environment of greater economic uncertainty.”
He said the cost of shipping from Asia had risen eightfold in the past year, affecting clothing and other products including tea and chilli sauce, while the price of natural gas, used in sugar production and baking, had risen from 40p to over £4 a therm. Pay at Primark went up 12% in April, and inflation was hitting the price of cotton and wheat.
“Ukraine has given [inflation] an extra set of legs and it is possible supply chain disruption in China could keep it going longer too,” Weston said.
The warning comes after Primark increased sales by 64% year on year to £3.5bn in the six months to 5 March, as it was able to keep nearly all its stores open throughout the period after a series of high street lockdowns around the world during the earlier stage of the pandemic.
Primark said it had rung up strong sales of luggage and holiday kit such as swimwear and sandals as its customers began travelling again. Health and beauty sales also recovered, with false eyelashes and nails performing particularly well from the revival of socialising. However, sales for the period remained 10% below those before the pandemic despite a recovery at city centre stores.
Weston added that an online facility, introduced in the UK a fortnight ago, which enables shoppers to check if their local Primark has a particular item in stock, was performing well. The group plans to launch the online checker across all its international markets alongside extra functions such as wishlists.
Despite rising cost pressures, operating profit margins returned to pre-Covid levels as shoppers flooded back to stores and it benefited from a favourable exchange rate with the dollar, which is used to pay many suppliers.
