Primark is facing significant tax hikes, prompting a strategic shift to automation to manage costs.
- Associated British Foods (ABF), Primark’s owner, anticipates fewer UK jobs amid rising employer National Insurance contributions.
- Chancellor Rachel Reeves has raised the National Insurance from 13.8% to 15%, affecting retail businesses heavily.
- Primark plans to expand self-checkouts and automate warehouses as part of cost-cutting measures.
- Despite efforts, ABF foresees that automation alone won’t offset increased wage costs, with a focus on sales growth.
Primark is strategically responding to substantial tax increases imposed by recent budget changes. The company is ramping up its efforts in automation to manage these costs effectively. George Weston, CEO of Associated British Foods (ABF), which owns Primark, emphasized the significant impact of rising employer National Insurance contributions. Primark employs approximately 40,000 workers in the UK, making this a considerable financial challenge.
The Chancellor’s decision to increase National Insurance contributions from 13.8% to 15% and lower the earning threshold has intensified the financial pressure on the retail sector. It is estimated to generate £25bn annually, with £2.3bn projected to come from retail businesses alone, highlighting the industry’s burden.
To mitigate these added expenses, Primark is looking towards automation, including the implementation of self-checkout systems and automated warehouses. As part of their global store refurbishment, around 100 of their 451 stores across 17 markets are already equipped with self-checkouts. This number is expected to increase to 170-180 by the financial year-end, demonstrating their commitment to reducing labor costs.
Despite these advancements, ABF acknowledges that the savings from automation will not fully cover the increased costs from National Insurance and rising minimum wages. Starting next April, the minimum wage will rise by 6.7% to £12.21 per hour for workers over 21, adding further financial strain. ABF is counting on sales growth to navigate these fiscal challenges.
George Weston expressed optimism regarding the potential increased spending capacity of consumers due to the minimum wage hike. He noted that if families feel less financially pressured, Primark might experience a boost in sales, as it is well-positioned to serve budget-conscious consumers.
Primark’s move towards automation reflects its strategy to manage new fiscal challenges, while hoping for sales growth amid wage increases.
