Primark promises its cheap chic will stay cheap
Shopping trends last seen during the recession have resurfaced with discount chains Aldi and Lidl enjoying booming sales and demand for big-ticket items weakening.
Trading updates from Primark, Premier Foods and Carpetright all point to households keeping a tight rein on expenditure as inflation erodes their spending power.
Given the tough climate Associated Foods, the owner of Primark, said its cheap chic would stay cheap as it did not plan to pass higher cotton prices on to consumers. George Weston, its chief executive, said shoppers were price sensitive and it had seen sales accelerate in the last two months after a slow start to the year. Weston argued that defending its market share was "the right thing to do" rather than increase prices: "We are determined that Primark will retain its position as a price leader." Analysts said the tactic would knock some £20m off this year's profits, making ABF's shares the biggest faller in the FTSE 100, down 61p at 984p.
Several British retailers have issued profit warnings over the past month. Carpetright fired off its third profit warning of the year on Wednesday as replacing carpets remained a low priority for homeowners. The retailer said profits would now come in just shy of the £17.2m made two years ago amid "fragile" consumer confidence. Like-for-like sales were running down 6.3% and Philip Harris, its executive chairman, said the difficult environment meant it had been unable to pass on sharp increases in raw material costs, notably polypropylene which has risen by a third since November.
Adding to the gloomy picture, mobile phone company Nokia announced 700 job cuts in Britain while conservatory manufacturer Amdega collapsed into administration putting nearly 200 jobs at risk.
Fresh industry data published showed that Aldi and Lidl, which were among the few retailers to benefit from the recession two years ago, have enjoyed a resurgence with sales growing at 15% and 14.7% respectively in the last three months. Edward Garner, a Kantar Worldpanel analyst, claimed the trend was "not a re-run of 2008" when new shoppers turned to these outlets to ride out the recession and food price inflation of 9%, instead he argued that the momentum is coming from their existing shoppers spending more.
"While in comparison to other major outlets Aldi and Lidl's basket sizes remain relatively small, there is no doubt that these two retailers are now taking a larger portion of shoppers' spending," he said. Aldi and Lidl are now sitting on all-time record market shares of 3.3% and 2.6% according to the data from Kantar Worldpanel for the 12 weeks to 17 April.
The figures also show the top end of the market doing well with Waitrose romping ahead on growth of 7.7% – twice the rate of the wider market which is growing at 3.6% – which Garner said showed not everyone is responding to economic pressures in the same way. In contrast the big four grocers showed growth was harder to come by with Tesco, Asda and Sainsbury's all losing ground. Indeed Morrisons was the only big supermarket to lift its market share during the period rising from 11.8% this time last year to 11.9%.
Just as Primark, which is famous for rock-bottom prices and its spring ranges include £11 maxi dresses and tie-front T-shirts for £4, thrived during the official recession so did the so-called "hard discounters" Aldi and Lidl with pundits referring to the "Aldi effect" and dubbing their customers the "Aldi-rati" as middle-class shoppers embraced their electic ranges in a bid to save money. But whereas Primark continued to grow strongly after the credit crunch ended, the sales bonanza was short-lived for the food discounters.
Clive Black, a Shore Capital analyst, said the trading figures pointed to a "polarisation in shopping habits" with the "haves" helping retailers such as Marks & Spencer and Waitrose do well while the "have-nots" turned to the deep-discounters. The Kantar Worldpanel data showed grocery inflation now stands at 4.3%.
Anlaysts said consumers trading down to own label brands and update from Premier Foods showed that sales of its grocery division, which makes staples such as Oxo cubes, Sun-Pat peanut butter and Bisto gravy granules, had slumped 8.7% in the first quarter. Group sales were down 3.1% and Robert Schofield, it chief executive, pointed to fresh pressures as raw material price inflation continued to rise.