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RETAIL ENVIRONMENT

Coronavirus - warning over shortage of clothes

Primark’s owner Associated British Foods (ABF) has warned there is a risk of shortages of some clothing lines later this year if delays in factory production in China are prolonged because of the coronavirus.

The virus has killed more than 2,400 and infected more than 77,000 people in China and slowed growth in the world’s second largest economy.

ABF, which sources more than 40% of Primark’s products from China, said it typically built inventories in advance of the lunar new year, meaning it was well stocked for several months and did not expect any short-term impact.

The group, which maintained its overall financial guidance for the full 2019-20 year, said it was working closely with its suppliers in China to assess the impact of the virus on their factories and supply chains and their ability to fulfil its current orders.

“If delays to factory production are prolonged, the risk of supply shortages on some lines later this financial year increases,” it said.

“We are assessing mitigating strategies, including a step up in production from existing suppliers in other regions.”
Shares in ABF, the majority of which are owned by the family of the chief executive, George Weston, were down 2% in early trading, paring gains over the last year to 9.5%.

Shares in Primark’s British clothing rivals Next and Marks & Spencer were down 2.5% and 3.8% respectively.

The ABF finance director, John Bason, said Primark was talking to suppliers in Bangladesh, Cambodia, Vietnam, Turkey and eastern Europe to fill the potential gap, although he said some items manufactured in China could not be replicated.

“There are accessories or whatever, areas like that, that China is very good at that are harder to source from elsewhere so I’m not guaranteeing that we can replace all of the shortfall from China,” he told Reuters.

ABF also owns major sugar, grocery, ingredients and agriculture arms. Several of its food businesses have operations in China.

It said the China sugar processing campaign had been completed in January, before the coronavirus outbreak developed significantly.

However, its AB Mauri, AB Agri and Ovaltine factories are operating at reduced capacity because of labour and logistics constraints caused by the virus outbreak.

Bason said the impact was not material to the overall group.

For its first half to 29 February, ABF forecast sales and operating profit ahead of the previous year.

Primark’s first-half sales were forecast to be up 4.2%, with like-for-like sales level. British sales were forecast up 3.0%, with sales in the eurozone expected to be up 5.3%. 

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