The collapse of Primark and the fast fashion sector heralds an autumn of recession

The collapse of Primark and the fast fashion sector heralds an autumn of recession

Will the recessionary wind blowing on the international economy manifest itself through a stagnation in consumption? After Prime Day in July had brought Amazon to give discrete positive sensations, the awareness that in Western economies private spending is starting to be stationary emerges from data regarding the fast fashion sector and online shopping.

The sharp fall in the stock market of the company that owns Primark

On Thursday, September 5, the markets were dominated by the sharp decline in the stock market of the German company AB Foods, owner of the famous fast fashion chain Primark, which recorded its worst daily fall since the beginning of the Covid-19 pandemic. AB Foods lost $2 billion in value in a single session, equal to 8.5% of its capitalization, due to a crisis in its sales. As Gabriel Debach, Market Analyst at eToro, reports, “in addition to concerns about margins from sugar sales for the corporate group, the Primark chain instead recorded a 0.9% drop in like-for-like sales in the last quarter, also due to unfavorable weather in the United Kingdom and Ireland. Primark represents about two-thirds of AB Foods’ profits, and the news also generated pressure on stocks such as Inditex (owner of Zara) and H&M”.

Before Primark, Asos: Retail Sales Stagnation

The drop follows that of another retailer, Asosand shows a stagnation in retail sales that concerns groups that often have their reference market in a general public and certainly not high-spending. These are not significant contractions that do not impact the economic sustainability of these companies, but they certainly give us food for thought about the general trend that is being created. In Europe, after all, retail sales in the summer remained anemic: -0.4% on a monthly basis in June, +0.1% in July. For Debach “this hesitation in consumption is the reflection of a still fragile confidence, an aspect that continues to slow the growth of the sector and weigh on many stocks linked to retail and luxury”. The same goes for the United States, where despite the positive result for Amazon on Prime Day, Business Insider reports that the general trend is declining and after zero growth (+0.1%) in May compared to the same month of the previous year, the volume of retail purchases in the country fell by an average of 1.3% in the following quarter.

Consumer sentiment has soured

As Yahoo Finance recalled, in fact, “Shoppers aren’t opening their wallets as easily as they face the cumulative effects of inflation and a colder job market. A higher cost of living and slow hiring activity were cited as the main reasons why consumer sentiment has soured, according to a recent McKinsey survey.” A sentiment of this type, after all, had already been manifested by the sharp downsizing of PDD, the company that controls the Temu marketplace, when the company presented its financial results at the end of August. https://www.wsj.com/business/retail/gloom-falls-over-one-of-chinas-most-successful-e-commerce-giants-994bdfae

Temu, lower than expected revenues

PDD reported an increase in quarterly revenues to $13.36 billion, an 86% increase compared to the second quarter of 2023, also thanks to the contribution of Temu. In addition, the company exceeded analysts’ estimates for earnings per share, reaching $3.20 compared to the expected $2.87. However, the figure that weighed most was the difference between the initial revenue forecasts, which were $13.95 billion. This gap of $600 million raised concerns among investors, suggesting a possible slowdown in growth and the beginning of a stabilization phase, representing missed consumption and leading the company to burn $45 billion in one session. Proof that even perfectly healthy accounts can be read, in times of pessimism, as a glass half empty. And the economy, as we know, is more emotional than rational. In short, consumption data invite us to prepare for possible recessionary surprises in an autumn that could bring early frosts to major economies.