The high street suffered immeasurably at the hands of the recession, with several well-known brands forced into administration and many more being forced to borrow large amounts of money in order to remain operational. While the worst of Britain’s economic difficulties are over, signalling a period of recovery for struggling retailers nationwide, consumers remain wary of excessive spending in case of a return to recession – meaning that bargain stores and budget supermarkets are enjoying a period of relative success.
This is certainly the case for low-cost fashion chain Primark, which has reported like for like sales growth of 3 per cent for the financial year to September 15th 2012. Revenues have also grown by 15 per cent to £3.5 billion in the same period, defying the trend of loss or minimal growth that is the current norm for many high street retailers.
During the year, the clothing retailer opened 19 new stores bringing their international commercial property portfolio to 242 stores – 157 of which are found in the UK. This expansion allowed the chain to create a further 10,000 jobs, meaning that Primark now employs in the vicinity of 43,000 workers worldwide.
Primark’s performance was described as “exceptional” by parent company Associated British Foods, which benefited hugely from the discount clothing brand’s success. The Group posted full year pre-tax profits of £761 million earlier this week, largely due to the combination of Primark and sugar brand AB Sugar.
Due to higher commodity prices, the sugar division of Associated British Foods managed to increase revenues by 25 per cent to £2.66 billion. While analysts doubt that high sugar prices are sustainable, the boost has provided a welcome financial uplift to the Group, which also owns popular food brands such as Twinings and Kingsmill.
Although the Group’s pre-tax profit is only a £4 million increase on results seen in 2011, growth of any sort is to be welcomed in post-recession Britain. The success of the individual brands controlled by Associated British Foods has also had a positive effect on the share price, which has increased by 20 per cent throughout the year.
Chief executive of Associated British Foods, George Weston, expressed his delight at a highly positive year of trading, and hinted at plans for further expansion of the Group in the near future.
He said; “These are very good results for the Group and include exceptional performances from AB Sugar and Primark.
“Global economic uncertainty remains but we have opportunities for further investment and the strength of the Group balance sheet and a strong cash flow will enable us to pursue them with confidence.”
Of course, much of the expansion is expected to be centred round the Primark chain, which had a successful summer in the UK and is proving popular in the European market. A further 12 stores are expected to be opened in time for Christmas in various locations worldwide, while two of Primark’s largest UK stores – in Manchester and Newcastle – are currently undergoing expansion in time for the Spring fashion line to be released.
Stockbroker and investment firm Panmure Gordon believes that the success of Associated British Foods will continue, largely thanks to a steady expansion plan in the discount clothing chain.
Analyst Graham Jones said; “While we expect sugar profits to fall back somewhat from the exceptional levels reached in 2012, we still expect the Group to deliver a healthy 5.5 per cent earnings per share growth driven by Primark’s continued strong expansion programme and a recovery of profits in grocery.”
It appears, then, that while the high street struggled during the recession certain brands managed to use the economic difficulties to their advantage. However the real question is, as the economy gradually picks itself up, whether or not discount brands such as Primark will still seem as attractive a choice to consumers with an increasingly higher disposable income.
Have you bypassed more expensive fashion chains in favour of cheaper options such as Primark during the economic difficulties, and if so will you remain loyal to that brand instead of reverting back to more costly retailers? Do you think Primark’s success will continue as the economy recovers, or do you think it was simply a clothing chain consumers used in order to save money during the four year long recession?
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