Primark sales woes underline the challenges facing retail

Primark’s owners have reported a rare plunge in retail sales during the crucial Christmas quarter, underlining the challenges facing even discount retailers in the tough economy.

Associated British Foods (ABF) reported a like-for-like sales decline of 6% for Primark in the UK and Ireland over the 16 weeks to 4 January.

It said that while sales within the fashion-dominated business had held up over the festive season, the build up to December was mired by weak consumer demand and warm weather.

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ABF said that as a result of the drag, it was now expecting “low single-digit” sales growth for the brand in 2025, down from a forecast for mid single-digit growth made in November.

That was despite growth in key emerging markets of the US, France, Spain, Italy and Portugal.

The UK and Ireland account for almost half of Primark’s revenues.

The company’s bleak update chimes with the findings of an industry survey, released earlier on Thursday, which stated that the outlook for UK consumer confidence had plunged to a new low.

The British Retail Consortium’s (BRC’s) latest Sentiment Monitor showed declines in expectations for both the economy and personal finances.

The retail lobby group has been among the loudest voices in opposing Chancellor Rachel Reeves’ decision to pile £25bn of taxes on business in the budget – the vast majority through employer national insurance contributions.

The measures do not kick in until April but major employers, such as supermarkets and other major chains, have widely warned that the tax grab will result in lower investment, jobs, wages and higher prices to help offset the impact.

The most recent employment figures pointed to an acceleration in job losses among payrolled employees during December.

While highlighting the deterioration in consumer confidence, the BRC did add that a significant contribution was likely to have come from a traditional post-Christmas easing when many shoppers tend to tighten their belts.

BRC chief executive Helen Dickinson said of the outlook: “As the government warns of tough times ahead, it is little surprise that the public have caught the January blues.

“Consumer confidence in the economy fell to a new low, with concerns most pronounced among older generations.”

She added: “On top of this challenging market backdrop, retailers are facing £7 billion in additional costs from the budget and new packaging levy.

“With retailers’ tight margins leaving little scope to absorb more costs, many are warning of price rises and job cuts in the coming months.

“To mitigate this, and shore up investment in shops and entry level jobs, the government must ensure that no shop ends up paying a higher business rates bill because of its proposed reforms.”

The Labour government has placed economic growth at the top of its list of priorities but the economy has stagnated since the election, with consumers continuing to grapple a host of higher bills such as from household energy.

Shares in ABF were down by more than 2.5% while some other consumer-facing stocks also fell in sympathy.

Russ Mould, investment director at AJ Bell, said of the update: “If Primark is struggling, you know the UK retail sector is in trouble.”

He added: “When Primark says UK sales are weak, you know there has been a change in shopper behaviour. People might still be visiting its stores but they are being more selective and that’s a problem when the business model is built on shifting high volumes of goods.

“Retailers love to blame the weather when things don’t go well. While the UK autumn was relatively mild, winter has been bitterly cold so Primark should still have been able to shift plenty of jumpers and coats in recent weeks, albeit the last couple of weeks fall outside of the reporting period to 4 January for the trading update.”