Yahoo Finance Primark mulls retreat from Germany after suffering £200m hit
Primark is considering shutting stores in Germany as it struggles to attract shoppers in the same numbers as prior to the pandemic.
The retailer’s owner, Associated British Foods (ABF), said it was reviewing its options in the country, including potentially scaling back stores, in an effort to push its German business back into the black.
ABF took a £206m charge against Primark Germany, after profitability fell "to an unacceptably low level".
Its 32 German Primark stores are mostly in city centres and are typically much larger than those in the UK. This has left it facing higher staff costs at a time when sales have yet to recover to pre-pandemic levels. As with the rest of the world, German shoppers are struggling with spiralling inflation, which has hit spending on non-essentials.
Primark faced similar issues in the US and ultimately opted to downsize some stores in an effort to cut down on costs, suggesting a similar retreat could be on the cards in Germany.
Issues in Europe, together with rising costs, mean Primark will face "continued pressures on margins," analysts at Liberum said.
ABF has been forced to swallow £1bn in extra costs in its most recent year as inflation hits its supply chain.
However, Primark pledged not to increase prices any more than has already been announced, "given a context of a likely reduction in consumer disposable income".
It said it was still uncertain what effect the cost-of-living crisis would have on its business, but was aware that "some consumers are having to make challenging and difficult choices in respect of what they spend and where they spend it".
Despite this, shares in ABF were up 4.3pc in early trade, after it announced plans to return £500m to shareholders and upped its dividend by 8pc.
ABF increased investors payouts on the back of strong performance across the wider business.
Sales, margins and profits increased significantly in its latest financial year to September 17, following the end of pandemic restrictions.
Primark UK stores enjoyed a 48pc jump in sales, buoyed by more commuters returning to city centres again and a boom in tourists over the summer.
Sales of smart casual clothes for men were also higher following a return to the office.
