Primark is holding the price of its clothing steady this spring, after price rises in 2023, as the retailer said consumer spending remains fragile and some of its costs were falling.

The cut-price fashion chain said sales at established stores in the UK rose 3.8 percent in the 16 weeks to 6 January as prices rose by about 3 percent and more shoppers bought its slightly pricier The Edit and Rita Ora ranges.

Globally Primark’s sales rose 7.3 percent to £3.4 billion in the period, helped by store openings in the US and Europe.

The amount of clothing sold fell back as a warm autumn and tight household budgets put off shoppers – although Primark said sales picked up strongly just before Christmas when cold weather hit.

“The pricing power of the consumer is still fragile,” said Eoin Tonge, the finance director of Primark’s parent group, Associated British Foods (ABF). “[The world] is not in a strong consumer place at the moment. [Outside the UK] it is even tougher.”

Primark’s pace of growth slowed in the autumn but the store-only seller’s growth was another sign of the high street’s win over online clothing specialists at Christmas.

While major retailers that can offer online orders and a vast network of stores – such as Marks & Spencer and Next – did well over the festive period, those more reliant on web traffic or with weaker brands struggled.

On Tuesday, the fast fashion website Boohoo said it had traded in line with expectations over Christmas – which were for a sales fall of up to 17 percent despite inflation – as it battles heavy competition from rapidly growing Chinese sellers such as Shein as well as a return to high street shopping, particularly among young people.

Quiz, which makes almost a third of its sales online, also revealed that sales in December were down 11 percent on the same month a year before, which it said reflected the “negative impact of inflationary pressures on consumer demand which resulted in declines in traffic both in-store and online”.

Tonge said Primark had gained its highest value UK market share to date as hard pressed shoppers turned to the cut-price chain. It was helped by a new online stock-checking service, click and collect on some products in 50-plus UK stores and sought-after lines such as the Rita Ora collection.

“Our average selling price has been going up for about 12 months. We are out of that now and we don’t expect any more price increases. It is a question of whether we will start to see prices decreasing,” Tonge added.

The cost of materials, such as cotton, and of manufacturing goods is coming down but staff costs are increasing. Tonge said wage rises would have greater impact than the additional cost of shipping driven by container ships having to travel around Africa because of attacks on vessels off the coast of Yemen, which are discouraging many from transiting the Red Sea.

“This is not like Covid when all ports were having problems. This is one shipping [route] and most have just changed line. It is relatively adaptable,” Tonge said. He said the alternative route added two weeks to transit and would be more expensive. He thought this was “another reason that prices won’t come down soon” but added “we don’t think it is material and we will just have to absorb it”.

ABF promised City analysts that Primark could stick to its plan to rebuild profit margins after last year’s drop, despite the freight issue, as analysts at Barclays said: “We doubt the impact would exceed £20m unless the situation in the Red Sea were to significantly worsen.”

Tonge said there was still inflation on food but he expected prices to begin to fall by the end of 2024.

“Commodities and energy have come down significantly and that was a big driver of inflation,” he added.

While labour costs were still rising, he said: “The trend on food inflation will continue to come down and I think we will go into deflation.”

By Sarah Butler

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The first major fashion moment of the year, a star-studded return to the red carpet at the Golden Globes, was dripping with diamonds. Dua Lipa and Reese Witherspoon wore archival necklaces from Tiffany & Co. De Beers dangled from Taylor Swift’s ears. America Ferrera’s neck sparkled in Harry Winston and Lily Gladstone wore a piece from Bulgari containing more than 70 individual diamonds.

Where did all these stones come from? That’s still not an easy question to answer for many companies, even as consumer concerns about pollution and human-rights abuses linked to the diamond trade have combined with mounting competition from lab-grown jewels to spur the industry towards greater transparency in recent years.

Diamonds are the product of long and complicated supply chains. Stones are typically sold in lots that are aggregated from different mines and pass through dozens of hands and countries before being set in a tennis bracelet or engagement ring. Hard-to-police processes and tangled webs of middlemen have plagued efforts to establish robust certification schemes. New technologies that promise better traceability are still limited in their rollout and mostly confined to larger stones.

Until now this has largely been a marketing challenge for the industry. But the war in Ukraine has drawn fresh scrutiny to the issue, since roughly a third of the world’s diamond supply is produced in Russia. Under new sanctions that started to roll out at the beginning of the month, all diamonds sold in the EU, UK, US, Canada or Japan will require verifiable and certified traceability “from the mine to the finger” by September.

That would be a seismic shift for the industry. And though it’s not yet entirely clear how the system will work, the new rules represent perhaps the most comprehensive effort to enforce transparency on any part of the fashion and luxury sectors.

“It really will be transformational for the diamond industry,” said diamond analyst Paul Zimnisky. “It’s going to usher in a level of transparency like we’ve never seen before.”

Old Industry, New Rules

The diamond industry has been grappling with the issue of traceability since the early 2000s, when concerns over conflict “blood” diamonds led to the introduction of the Kimberley Process certification scheme. But the UN-backed initiative has been criticised for significant flaws.

And while some countries banned direct imports of rough diamonds from Russia shortly after Western brands started exiting the country to comply with earlier sanctions over its 2022 invasion of Ukraine, stones cut and polished elsewhere in the world have remained fair game until now. Negotiations over introducing comprehensive sanctions on Russian stones were delayed in part because of the challenge in figuring out a system to effectively police the market.

According to the EU, the new system will require rough stones to be registered with a digital twin and certificate of origin on a blockchain-based ledger that will allow diamonds to be traced through cutting and polishing. A pilot of this system is set to be operational by Mar. 1 and rolled out across the market by September.

It’s an ambitious timeline for an industry dominated by a multitude of small businesses that are likely to struggle with the extra costs and admin involved in meeting the new requirements. Even for large players, the question remains whether existing technologies are capable of providing watertight and verifiable insight into the origins of a stone at scale.

“Traceability is such a core issue,” said Tiffany Stevens, the chief executive and general counsel of the Jewelers Vigilance Committee, a New York-based organisation that provides legal education and compliance guidance to the jewellery industry. “Now is the moment of truth for our industry in testing the systems that exist.”

Imperfect Solutions

Many large companies have already been preparing for the new regime. LVMH-owned Tiffany and Richemont both announced they had stopped buying Russian diamonds shortly after the war broke out. Dimexon, an Indian cutter and polisher specialising in smaller melee diamonds, has segregated its supply chain to ensure Russian stones don’t reach Western clients. It uses a database to track its diamonds and is able to confirm the non-Russian origin of its stones because it buys direct from miners.

The new sanctions will push this system further and test existing technologies. “It’s a learning curve,” said Morgane Winterholer, general manager of strategic brands and sustainability at Dimexon. “Rejigging supply chains, traceability tech, it’s all of that.”

De Beers, the world’s largest diamond miner, sources almost all of the stones in its jewellery from its own mines in Botswana, Namibia, Canada and South Africa. It has also developed Tracr, a system first launched in 2018 that combines blockchain and AI to track diamonds from mine to market. Rough diamonds are scanned, photographed, assessed and registered on the platform. As the stone is cut, polished and traded, each transaction alongside additional information and imagery are added to its digital identity.

De Beers opened the service up to the wider industry last year. Some 1.6 million rough diamonds and around 250,000 polished stones have been registered on the platform, but that’s a fraction of the global trade. It’s currently reserved for stones that weigh one carat and above and is still in the early stages of rolling out to the industry.

The new sanctions have increased the urgency of deploying such solutions. But onboarding new players takes time, and “even in our wildest dreams” the platform wasn’t intended to scale-up across the entire thousand-year-old diamond industry in the near term, said Tracr CEO Wesley Tucker.

Working with other organisations can help speed things along. For instance, in October, De Beers announced plans to work with with Sarine, a maker of devices and software used throughout the diamond supply chain that has built its own traceability programme. The companies are still working out how they’ll integrate their systems, according to Romy Gakh-Baram, Sarine’s director of global marketing. But because Sarine’s products are so widely used, it’s able to track a major share of the world’s diamonds, Gakh-Baram said. As a diamond passes through its systems, it captures information about the stone, creating a verified record.

If at any point Sarine’s products are not used, however, the chain is broken and it can no longer verify the diamond’s history.

“Generally, most of [the] rough diamonds in the world, they are going through our systems,” Gakh-Baram said. “It can be done.”

But even with the most sophisticated technology available, there’s currently no scientific method to trace a diamond back to the mine simply by examining its properties. That means companies will need to trust that the initial information about a stone’s origin is accurate.

“In any digital system, the point of failure is the person who inputs the data,” said Pierre-Nicolas Hurstel, co-founder and CEO of Arianee, a provider of blockchain-based digital product passports for brands. (Arianee is not currently working on tracing diamonds).

Marketing Opportunities

Exactly how much it will cost the industry to meet the new requirements is still unclear. And while Russian diamonds will likely still make it to markets in Asia and the Middle East that fall outside the new sanctions regime, those that fall under its reach account for around 70 percent of the global diamond retail market, according to the EU.

“It will upgrade traceability within the industry,” said diamond industry analyst Edahn Golan. “The downside is that all this is not going to be paid for by G7. It will be paid for by the industry and the consumer.”

Despite the additional costs and technological challenges, some see an opportunity for the new regime to bolster the marketability of natural diamonds at a time when the sector is facing new competition and scrutiny.

Demand for diamond jewellery has diminished following a pandemic boom, and lab-grown stones, historically dismissed as “fake,” have successfully been positioned as a desirable alternative that avoids many of the human rights and environmental concerns associated with traditionally mined stones.

In that context, traceability is a defence strategy. “If you can tell consumers where a diamond came from it quells concerns,” said Zimnisky. “It’s an opportunity to tell a story.”

Swatch Group on Tuesday missed profit forecasts for 2023 and proposed a much smaller than expected dividend increase — putting pressure on the world’s biggest watchmaker’s stock.

The maker of Omega, Tissot and Longines watches as well its eponymous mass-market plastic watches posted sales rising by 5.2 percent last year to 7.88 billion Swiss francs ($9.10 billion).

Although the figure was in line with market expectations, earnings fell short, with operating profit of 1.19 billion francs missing forecasts for 1.32 billion francs, according to LSEG data.

The proposed 8.3 percent dividend increase in dividend also missed expectations for a 19 percent increase, helping to send Swatch shares 3.2 percent lower in early trading.

“Swatch Group’s profitability was far worse than expected amid a mix of ramped investments, retail expansion and Swiss franc strength,” said Kepler Cheuvreux analyst Jon Cox.

“Sales were strong and the group is winning market share but free cash flow was actually negative despite a near 13 percent rise in constant currency sales in 2023.”

Bernstein analyst Luca Solca said Swatch was a victim of moderating consumer demand hitting second level brands. He highlighted a deceleration in Swatch’s organic growth to 6.4 percent in the second six months of the year from an 18 percent in the first half.

Uncertainty about the economic outlook, persistent inflation and China’s cooling economy have weighed on the luxury sector as a whole.

Swatch — known for its bullish outlooks — was still confident on the basis of its lower and mid-priced segments, as well as the exposure of its Omega brand as the timekeeper at this year’s Paris Olympics.

“The group anticipates excellent opportunities for further growth in local currencies in 2024,” the company said.

By John Revill; Editing by Linda Pasquini and Barbara Lewis

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Macy’s said on Sunday it had rejected Arkhouse Management and partner Brigade Capital Management’s $5.8 billion proposal to take the department store operator private, citing concerns over deal financing and valuation.

Like other legacy department store operators, Macy’s has struggled to compete against younger, online competitors or peers with smaller brick-and-mortar footprints. This has given Arkhouse, a real-estate-focussed investing firm, and Brigade, a hedge fund, an opening to put pressure on Macy’s to explore a sale.

The two investment firms submitted a proposal last month to acquire the shares of Macy’s they don’t already own for $21 a share. The duo sees “the potential for a meaningful increase to the original proposal if we are granted access to the necessary due diligence,” Arkhouse said in a statement.

But Macy’s said the offer was not financially attractive or credible enough to grant such access.

“The board has determined not to enter into a non-disclosure agreement or provide any due diligence information to Arkhouse and Brigade,” Macy’s said in a statement.

Macy’s also said that information furnished by Arkhouse and Brigade “failed to address its board’s concerns regarding Arkhouse and Brigade’s ability to finance their proposed transaction.”

Macy’s is not running a sale process with other parties and no other unsolicited bidders have emerged that meet the company’s expectations about a potential deal, according to people familiar with the matter. Macy’s expects a successful bidder to show enough committed financing and have a track record of pulling off buyouts in the retail sector, the sources added.

The Arkhouse and Brigade Capital Management-led investor group has a significant stake in Macy’s through Arkhouse-managed funds, Arkhouse said.

Arkhouse said that investment bank Jefferies, which is acting as the buyout group’s financial adviser, “has provided a highly confident letter supporting our ability to raise the necessary funds for the transaction.”

Macy’s, however, called the financing uncommitted and said it came with numerous non-standard preconditions.

The investment firms’ bid has spotlighted how undervalued Macy’s is relative to its real estate, which is projected by analysts to be worth between $7.5 billion to $11.6 billion.

Macy’s owned 316 of its 722 total stores as of the end of January, according to its most recent annual report.

Macy’s last week said it is cutting 2,350 jobs and closing five stores at it aims to streamline operations.

By Kanjyik Ghosh and Abigail Summerville; Editing by Leslie Adler and Christopher Cushing

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