ABF still confident in store-only Primark model – despite missing out on estimated £2bn in sales during lockdowns

ABF says it keeps costs lower through efficient store distribution and economies of scale. Image courtesy Primark

ABF says it keeps costs lower through efficient store distribution and economies of scale. Image courtesy Primark

Primark missed out on an estimated £2bn in sales while its stores were closed for Covid-19 lockdowns and trading restrictions during its last financial year. But parent company Associated British Foods (ABF) today says it continues to have “unwavering” confidence in its store-only business model.

Primark sales are still 12% lower than pre-pandemic levels as a result of store closures. ABF says that Primark has a “compelling brand proposition,” selling clothes that everyone can afford thanks to economies of scale and low distribution costs. This, it says, gives it a “differentiated business model with real competitive advantage”. The retailer is investing to improve both its digital presence and online visibility and will launch a redesigned – but still non-transactional – website in the first quarter of next year.

Through a new sustainability strategy it aims to make the case for offering sustainable fashion that is affordable for all.

The update come as Associated British Foods (ABF) today reported group revenues of £13.9bn in the 53 weeks to September 18. That’s 0.4% lower than last year, while pre-tax profits of £808m are 1.8% lower than the £810m reported last year. 

Primark sales of £5.6bn are 5% down on last year. They are also 12% down on pre-pandemic levels, on a like-for-like basis that strips out the effect of store – and business – openings and closures. Adjusted operating profits of £415m were 15% higher than the £362m reported last year – before repaying £94m in furlough support – but after that were 11% lower at £321m. 

Primark is now to invest in upgrading its non-transactional website – and expects that sales next year will increase by at least £2bn in sales – the amount it estimates it missed out on because of in its current financial year. It also expects sales to grow as it opens new stores, in markets including Italy and Spain. 

ABF chief executive George Weston says: “Primark delivered a good performance in the face of continued disruption to trading caused by the pandemic. It also unveiled its wide-reaching sustainability strategy with the aim of making more sustainable fashion affordable for all. Although the possibility of further trading restrictions cannot be ruled out, we expect Primark to deliver a much improved margin and profit next year. We are now intent on expanding our new store pipeline and investing in technology and digital capabilities to continue improving the performance of the business.”

When stores reopened from lockdown in the third quarter, it says, customers came back to its stores en masse, with LFL sales 3% up on two years ago. But in the fourth quarter of the year it suffered from the decline in footfall, with LFL sales 17% behind, thanks to factors including July’s pingdemic.

Digital strategy

ABF says that digital is becoming increasingly important in the Primark business, with a new Oracle stock management system being rolled out in its stores this year, and extending to all point of sale terminals by the end of 2022. It will launch a new website in the first quarter of next year, enabling customers to browse around 70% of its range, discovering richer product information, images and product availability. The current Primark non-transactional site shows about 20% of the range. The retailer is also building digital marketing capability in order to build customer relationships, and to capture and manage customer data. 

Supply chain pressures

The retailer has sold all the spring and summer inventory it brought forward from the previous year as a result of Covid-19 closures, and says its held-over autumn and winter inventory is now being sold. But in recent weeks it has experienced more disruption in its supply chain, including temporary closures at ports that stock is being sent from, congestion at the ports it is sent to, and limited availability of sea containers. This has affected both inventory being handed over from suppliers, and the delivery of that inventory to its stores. It is working with logistics providers to manage this, and prioritising the products most in demand. However, it says that stock it already has in its warehouses will help it to cover most of its lines in the peak Christmas trading period. 

Sustainability 

Primark aims to reduce fashion waste, halve carbon emissions in its supply chain and improve the lives of people who make its products. In the enter nine years, it says it will ensure all Primark clothing is made from recycled or “more sustainably sourced materials” by 2030 – from a quarter of all clothing currently. It also aims to take single use plastics out of its operations by 2027, and to have a living wage for its supply chain workers by 2030. The retailer believes its costs will only increase modestly as a result of the strategy, which it will report on each year. 

Its Primark Cares range is made from recycled and sustainably sourced materials and has performed strongly since its sustainability strategy launched in September. The retailer is also running a How Change Looks campaign in stores and on websites across its 14 markets. 

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