Cotton price increase to hit Primark hard

April 28, 2011

With the recent VAT increase, and the impact of higher input costs, such as cotton. Primark’s owner, Associated British Foods (ABF) has warned profit margins at the fast-fashion retailer will fall.

Shares in ABF have fallen by almost 6pc as a result of such factors. ABF has said that in the six months to March 5th, Primark’s operating profit margin fell. Furthermore, the company “expects to reduce margins further” in the second half of its financial year.

ABF shares dropped 61p to 984p, a 5.8pc decline.

However, George Weston, ABF’s chief executive, has stated that although costs of necessities such as cotton have risen, as well as VAT, Primark will “continue to offer the best value on the high street” so customers won’t feel the burden of increasing manufacturing costs.

Mr Weston was also quick to point out positives, claiming that unlike rival chains, like-for-like sales are growing at the fast-fashion retailer. The figures do prove this, as over the half-year period to March, like-for-like sales rose by 3pc and continue to do so. He also sated that the Easter period was “great” for Primark’s sales.

As well as owning Primark, ABF also owns Twinings tea, Kingsmill bread and Silver Spoon sugar – and their overall pre-tax profit in the six months to March 5th was £319m, down £1m from last year. Revenue did however increase, by 9pc to £5.2pc.

We’ve been seeing a lot of international desire from retailers recently; ABF’s plans for Primark also reflect this. Already having 214 shops, with 10 new stores opened in the first half and six planned for the second half of the year – ABF have announced that over the first six month’s of their next financial year, they will open five shops in Germany. ABF have described Primark’s Continental Europe growth as being “very encouraging”.

So it seems Primark are keen to move on from what hasn’t been the best period and start looking to the future. They have a strategy in place that will allow them to continue offering the lowest prices possible to their customers, and are even thinking on a global scale.

In other news…

Upcoming retailers will already be well aware of the importance of social media in establishing a business, but social integration and recommendations engine, nTokio, suggest that retailers have a much larger captive audience on their own sites than on social networks such as Facebook.

They are urging retailers to take advantage of existing communities on their existing websites, rather than neglecting them for developing a Facebook store. nTokio advise retailers to incorporate social media within their websites, rather than relying on social networks to bring custom.

Much like you’ll see here on, incorporating a social network such as Twitter allows users of both the website, and the social network to engage. Gareth Mee, CEO, nTokio advises that retailers:

“Don’t try to sell on Facebook, but [retailers] should be taking a multi-pronged approach to social commerce, adding social features to their own sites to drive engagement, sales and to get to know more of their users.”