Belfast Telegraph

Primark sounds warning over rising cotton costs

By Holly Williams

Irish-founded fashion chain Primark became the latest high street retailer to warn over rising costs as it battles against higher cotton prices and tax hikes.

Primark parent Associated British Foods said full-year sales and profits at the budget clothing group were expected to be "well ahead", but added that increases in its costs and looming VAT changes would put margins under pressure next year.

AB Foods is also fighting against soaring wheat prices at its food arm, which includes Kingsmill and Allinson bread company Allied Bakeries.

Primark's caution over the cost of cotton and freight expenses follows similar news from retail giant Next last month.

Cotton prices are running at 15-year highs as global supplies have tightened following the devastating floods in Pakistan - the world's largest cotton grower.

Retailers are also faced with having to pass on higher VAT charges as governments act to cut their deficits.

Primark is being hit with tax increases in its two main markets, with Spain having already implemented its increase and the UK set to follow with a rise to 20% in January.

But AB Foods said: "The market has remained very competitive in the second half with high levels of promotional activity, and much higher wheat costs seen in recent weeks will put pressure on margins next year."

Primark was founded by Irish businessman Arthur Ryan, who built the business from a single Penneys store on Mary Street in Dublin in 1969 into a chain with 122 stores in Ireland and the UK with £140m profit.