Primark says its click and collect trial will launch in the run-up to Christmas, with an expectation of bringing more customers into its stores. The update comes as parent company Associated British Foods (ABF) says Primark revenues are set to be 40% higher than last year – and that it will absorb inflation into next year without further price rises in order to retain its position of everyday affordability. That will mean profit margins are lower than in the current financial year.
ABF today says that the click and collect service – first announced earlier this year – would first run in 25 stores in both the north of England and in Wales, in a pre-close trading update for the year to September 17. The service builds on stock-checking functionality that it says has been “enthusiastically adopted” since the new Primark website launched in April.
“Our initial judgement has been confirmed that customers have welcomed its [the new website’s] new features,” says ABF in today’s trading update. “The key metrics, such as traffic and engagement, have steadily built from a strong start.”
The click and collect trial will offer an expanded range of children’s products that it believes “has the potential to satisfy unfulfilled demand, driving footfall from both existing and new customers to deliver incremental sales in store”.
The strategic approach to trialling click and collect comes as the retailer plans to grow its store numbers to about 530 by the end of its 2026 financial year – up from more than 400 today. Most new stores will be in its growth markets of the US, France, Italy and Spain.
The update comes as Primark expects to turn over £7.7bn this year – 40% ahead of the previous year, which was hit by Covid-19 lockdowns that left its only sales channel closed for weeks at a time. Operating profit margins in the full year will be in the order of 9.6%. An 8% margin in the second half reflects weaker than expected sales in continental Europe as customer spending patterns change in the wake of Covid-19. Continued restrictions and heatwaves have affected its Iberian stores, while French and German clothing sales have continued to lag behind pre-Covid levels.
Primark working capital requirements increased to about £440m, both as the result of the late arrival of inventory at the end of 2021 following supply chain issues (£200m) and the earlier than usual arrival of inventory at the end of the financial year (£240m). Further challenges include cost inflation in energy, raw materials and labour, while both sterling and the euro have weakened against the dollar. It now plans to absorb this inflation and will not increase prices next year beyond those already planned. “We believe this decision is in the best interests of Primark and supports our core proposition of everyday affordability and price leadership,” says ABF in today’s statement. That will mean profit margins in the current year are lower than 8% seen in the second half of the year, although it plans to return to 10% as commodity prices fall and consumer confidence improves.
Our view: Primark’s approach to ecommerce is a highly strategic one. For years it has been the most high profile hold-out against digital commerce in a clothing market that has steadily shifted towards the internet, a trend accelerated by Covid-19 lockdowns and trading restrictions. It did so to protect its stores – and profitability. However it is now moving towards ecommerce in ways that still prioritise its stores but would enable it to continue trading should its stores be prevented from opening in the future – as happened during lockdowns. The open question now is whether it will complete that transition online by offering delivery – whether to homes or a third-party location such as lockers.