Primark’s parent company, Associated British Foods (ABF), is increasing its focus on automation to mitigate tax increase impacts.
- ABF plans to reduce its UK workforce within a year due to increased reliance on self-checkouts and warehouse automation.
- ABF’s decision follows the UK Budget’s rise in employer National Insurance contributions from 13.8% to 15%.
- Primark has already implemented self-checkouts in 100 out of its 451 stores worldwide, with plans to expand further.
- Primark’s financial performance shows a 6% increase in revenue to £9.4bn, despite the challenging economic environment.
Primark’s parent company, Associated British Foods (ABF), is prioritising automation as a strategy to handle the recent tax hikes introduced in the UK Budget. With an expected decrease in its UK workforce within the next year, the firm is amplifying its investment in self-checkouts and warehouse automation to counterbalance financial pressures.
The company’s approach comes after an increase in employer National Insurance contributions, which have risen from 13.8% to 15%, as announced by Chancellor Rachel Reeves. The threshold for earning at which these contributions start was also lowered from £9,100 to £5,000. According to the British Retail Consortium, the retail sector is anticipated to contribute £2.3bn of the annual £25bn revenue from this tax increase.
ABF’s CEO, George Weston, highlighted the company’s reluctance to raise prices further, opting instead to seek cost-saving measures. “We are very reluctant to move our prices again so we will start off by looking for cost savings, things like self-checkout units [which can] save us labour in store,” he conveyed. With automation expected to reduce the workforce, the company remains focused on efficiency improvements.
Self-service checkouts are a significant component of Primark’s global refurbishment programme. About 100 of its 451 stores across 17 markets currently have these systems, and this number is forecasted to expand to between 170 and 180 by the year’s end. This move is intended to enhance customer experience while managing operational expenses.
Despite these challenges, Primark has reported a 6% rise in revenue, reaching £9.4bn for the 52 weeks leading up to 14 September. This growth is attributed to improvements in both store experience and digital engagement. Operating profit surged 53% to £1.1bn, aided by reduced material costs, lower freight expenses, and the carryover of previous price hikes from the last year.
Looking towards future financial stability, Weston mentioned that while cost reductions alone would not cover the rising National Insurance and minimum wage increments, increased sales growth would be necessary. With a minimum wage increase of 6.7% to £12.21 per hour set for April next year, there is potential for increased consumer spending, which the company hopes to capitalise on. Weston stated, “We do a very good job for families who are not flush with money so maybe if they are feeling a bit less hard-pressed, we will benefit from that.”
The automation strategy by ABF aims to mitigate the impact of increased tax expenses while optimistically anticipating sales growth due to rising wages.
