Friday, May 18th, 2012
Ed Hart points to Primark sales showing that even bargain stores are being hit in UK.
What can Primark sales tell us about the economy? Rather a lot. For a start, it operates at the lower end of the market in retail clothing and it also produces upscale food brands like Ovaltine, Ryvita and Twinings (which are part of its parent Associated British Foods’ [ABF] portfolio).
Despite performing well in the lead up to Christmas – and being seemingly immune from the treacherous, double-dealing British weather which mugged Tesco – UK sales have since fallen because of the VAT rise and cotton prices.
ABF’s finance director, John Bason said: “The UK consumer is feeling a squeeze because of inflation and the VAT rise, and simply has less to spend. Even for people who don’t feel they will lose their jobs, they will feel they are being squeezed. It won’t just be Primark, but we’ll see it for a number of retailers.”
ABF shares fell 5% despite the news that the company believes revenues will be up around 11% on last year owing to good performances in Europe. Primark operates 214 stores in the UK and also trades in Belgium, Germany, Ireland, the Netherlands, Portugal and Spain.
The Primark sales warning makes a very clear point that even high volume low unit cost products are less affordable on price to British consumers than they were. This is illustrative of depressed demand in the economy.
When buying power on the most modestly priced items is being hit by dwindling disposable income, VAT, price inflation and consumer reticence to spend, you know that it is only a matter of time before they’ll be giving Twinings the elbow for something more modestly priced. The soporific qualities of Ovaltine – which might come in handy to deal with financial woes – could see it buck the trend but don’t bank on it.
Can you identify with the problem of people having less to spend, even on bargains at Primark? Tell us how the depressed economy is hitting your wallet, household or business
Ed Hart is wowdewow business editor
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Tags: ABF, Associated British Foods, bargain stores, Belgium, British consumers, germany, Ireland, John Bason, Ovaltine, Portugal, primark, primark sales, Spain, Tesco, the Netherlands, Twinings, UK sales, vat increase
