Shares of Associated British Foods (ABF), the parent company of Primark, fell over 10% following a warning regarding “consumer caution” due to increasing cost-of-living pressures. ABF’s CEO, George Weston, indicated that rising inflation and fears of unemployment are contributing to a more cautious spending behavior among consumers. The company reported that market conditions remain “challenging,” resulting in customers tightening their budgets.
Analysts attributed the decline in share price to disappointing sales figures from Primark. Russ Mould, an investment director at AJ Bell, described the 1% sales growth in the six months leading to September 13 as a “let-down” for investors, highlighting that the profit margin had also declined. Mould noted this sluggish sales performance as a reflection of the cautious consumer sentiment in the European market, alongside competition from Chinese retailers like Shein and Temu.
In the UK, speculation surrounds significant tax increases expected to be revealed in the upcoming autumn Budget. Some economists anticipate that global inflation rates may rise in the latter half of the year, with similar expectations for the UK. Mould pointed out that the traditional assumption that value retailers would thrive during tight economic conditions might not hold true, as cheaper prices do not necessarily lead to strong sales, as seen with Primark.
Meanwhile, consumer spending in the US has been reported as more robust, although concerns persist regarding potential increases in unemployment and declines in job vacancies. Alex Smith, a global sector lead at Third Bridge consultancy, highlighted that US tariffs could pose challenges, as many of Primark’s products are sourced from China. He mentioned that while Primark’s expansion in the US has seen positive consumer responses, the challenges of storing and logistics amid uneven demand across regions have increased operational costs.
Source: https://www.bbc.com/news/articles/cwy9j5jzdwlo?at_medium=RSS&at_campaign=rss