Primark’s opening statement for 2021 had a slightly more sombre tone than you would expect from one of the UK’s reigning fast fashion champions. In a brief statement issued by its parent company Associated British Foods, the store revealed how it now expects to lose and additional £220m in sales due to the Covid-19 pandemic. A full trading update is expected from ABF on 14 January, and it is said that the group will haemorrhage a total of £650m, significantly worse losses than the £430m previously predicted last December.
At a disadvantage
Readers who have been following the brand’s journey will know that these figures come as a shock. Up until recently the store was enjoying steady upwards growth and raking in hefty profits. A report published by ABF in January 2020 showed the company boasting of “significant trading developments” – and sales were up 4.5% on the previous year.
While it would be foolish not to factor in the forced closure of high streets stores as a reason for this halt in sales: the brand’s refusal to sell its goods online has left it at a bigger disadvantage than most of its competitors. In the digital age the very notion that a leading clothing store would not trade online has baffled industry-watchers, leaving many to speculate as we enter another year of stop-and-start lockdowns, how can a retail chain that refuses to adapt to modern retail practices survive?
Why haven’t Primark gone online?
The solution to Primarks profit woes seems simple: set up an online shop and let consumers go crazy on £1 socks and T-shirts. However, Rob Shaw, MD EMEA at Fluent Commerce, an order and invenotry management platform, explains why the store may be hesitant to embrace the world of digital delivery.
“We can only surmise the rationale behind the decision of the board of Primark to reject the call for online trading but, it’s widely believed that the primary reason would have been the cost of servicing online transactions, including pick, pack, dispatch and, potentially returns, with a low average order value,” he says.
“Primark’s issues also start with not being in a position to have a single view of inventory across its business. Click and collect/shipping from store/returning to store would be a profitable way to serve customers but, only if they had the ability to access store stock and be confident on SKU volumes – which currently they can’t.”
He adds: “The irony is, Primark has procured most of the technology components they need to open up an ecommerce channel which, if utilised correctly, would have preserved significant amounts of lost revenues and potentially consumer advocacy, during the Covid-19 lockdown period – even if this was offered via limited regions in the first instance as a pilot.”
Moving with the times
Since the outbreak of Covid-19, high street retailers have fallen back on the safety net of online shopping. In a post-Christmas trading update published this January rival high street brand Next revealed that sales it made digitally compensated for almost all those lost in physical retail stores, with total product full price sales down just 0.5%.
With reports from the last quarter quickly filtering in, it appears that brands who have embraced the world of online ecommerce are experiencing a “better than expected” sales trajectory. Just last week lifestyle brand Joules also reported that its online retail sales increased 66% year-on-year during the holiday season.
Retail Sector reached out to Primark to ask if moving into the online arena would be something the store would ever consider, however they explained that it is not likely to be on the horizon.
A spokesperson said: “Although we will look at alternative business models from time to time, there are no immediate plans to trade online. We do of course showcase our products on social media and our website, and our social media channels have over 22 million followers.”
A fragmented retail market
Those in the retail space will argue that the pandemic was not the sole cause of casualties on the high street. Look back to 2019 and figures from the BRC and Springboard detailed how footfall dropped by 10% in the last seven years. Despite these statistics Primark has always managed to trade well mainly due to its accessible price point. However moving forward in a post-Covid era the store will likely have to adapt its practices to stay in the game.
“Primark essentially has three options,” says Melissa Minkow, retail industry lead at digital consultancy CI&T, “build out a direct-to-consumer (DTC) digital presence, invest in a third-party strategy, or hold tight until restrictions are once again lifted”.
She explains: “While the retailer reported strong sales during the brief window of lifted lockdown time, that type of pent-up shopping excitement can only last so long once restrictions end up lifted for good. These start-and-stop sales bursts can’t be enough to compensate for the extended closures, yet Primark has repeatedly emphasised that a DTC digital presence isn’t profitable for their price points.
“Considering how fragmented the retail market has become, with low and luxury basically the only two ways about it, completely changing course and entering the mid-range market just to support a DTC digital offering would be unreasonable. So, I would expect to see a third-party selling strategy on the eventual horizon.”