Primark has, for several years, been a high-street favourite – loved by many for its cheap, fast fashion spanning all ages and desirable homeware collections.
But while many of its competitors also have a significant digital presence, Primark has never ventured into the world of online shopping – until now perhaps.
Primark’s parent company, Associated British Foods (ABF) was hit hard by the pandemic, which forced the closure of its high-street stores for the majority of 2020. The subsequent ‘pingdemic’ also hindered Primark’s sales.
“Although Primark has snapped right back into the game, pandemic lessons are clearly lingering and the £1.1bn in lost sales due to store closures won’t be forgotten overnight,” explains Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. “There will now be investment into a new digital platform, and although it’s not clear if it will be transactional, the fact the company says that Primark is on the hunt for talent to create a new digital capability in the business seems to be a big hint that online sales will be part of the retailer’s future.”
To date, Primark’s online presence has been used to display and market the products it has on offer in store. This model did not benefit the business, however, when the pandemic forced the closure of all retailers.
But is a transactional website something that Primark, whose popularity remains high because of its cheap products, can pull off?
“There is no free lunch with selling online as the fairly thin profit margins generated by some online-only retailers suggest. Investment in IT and warehousing can be substantial, websites must be kept fresh and up to date, stock availability must be good, and more and more consumers are expecting next day, or even same day, delivery, so logistics must be slick,” says Russ Mould, investment director at AJ Bell. “A key problem also comes in the shape of product returns which can pile up costs and erode margins, a key consideration when Primark is working with relatively low-price points to start with.”
Pandemic boom and bust
Online shopping has boomed over the pandemic, with Asos reporting sales of £2bn in the last financial year and Boohoo recording a 41% hike in sales.
According to research by KIS Finance, almost 20% of all UK retail sales were online back in February 2020, but by May of the same year this had grown to 32.8% and has remained at the 30% mark, despite high-street retailers reopening once the lockdown restrictions were eased.
This shift, fuelled by the pandemic, has been the final nail in the coffin for many retailers – Debenhams was one of the latest victims, confirming that it was shutting its doors for good and selling its remaining 118 stores after Boohoo bought the brand and online business for £55m.
The boom in online retailing has also had a negative impact on jobs – in 2020, 180,000 retail jobs were lost, with KPMG predicting this could rise to close to 400,000 as the move away from the high street continues to gain traction.
Amazon, meanwhile, said it expects to create at least 7,000 new jobs in the UK as its fast and reliable online shopping model remains popular among consumers.
Fast fashion hybrid
There are, of course, instances when having both an online and high street presence has worked in harmony. Next, for example, was able to utilise its click-and-collect service during the pandemic to fully-service its customer base.
“Next uses [this] to great effect and is one reason why its boss, Lord Wolfson, argues that its high-street shops still have value to the business, even if that value may be slowly diminishing over time,” says Mould.
Fairview Investing investment director Ben Yearsley also questions whether Primark’s success without a website suggests it isn’t necessarily essential.
“I thought in this modern new world, where socially distancing is encouraged, you had to have a website to succeed. Primark has shown that isn’t necessarily the case and that physical shops can thrive if you give the consumer what they want,” he says.
He adds, however, that there is no indicator as to whether the company really needs an online retail presence.
“Sales figures suggest they don’t, so it is interesting they are now considering it,” Yearsley says. “If it gives the same experience as being able to shop physically then it will probably be a success.”
Boosting the share price
In April 2020, JOHCM UK Opportunities manager, Rachel Reutter, opted to sell ABF because of the impact the move away from the high street was likely to have on Primark.
“When we sold our shares in ABF last April we were concerned about in store volumes not returning to pre-pandemic levels, and the question marks around the sustainability of fast fashion in general,” she says. “We see ABF’s announcement that it will be launching a consumer-facing website as a positive development for the company. The Covid-19 pandemic has undoubtedly accelerated the shift to online shopping.”
The fund currently owns Next, which has invested heavily in its online platform and, according to Reutter, 90% of the company’s sales are generated via its website.
“One of the big positives for Next has been the development of its online platform to sell third party brands in addition to the Next brand which has leveraged its platform and increased the number of collections in store.
“The Primark brand will undoubtedly be popular as an online offering, but we think challenges will remain for the business to scale up and make it profitable given how low the average ticket price is and the existing positions held by the likes of Next and ASOS.”
With Primark a jewel in the crown of ABF, all eyes for now are on the near-term share price movements and whether recent falls will see it drop out of the FTSE 100 list.
Mould explains: “The shares are down some 2% today [Monday 13, September], currently placing them at the bottom of the FTSE 100. While it would be wrong to read too much into one session’s trading, investors are clearly still evaluating ABF’s proposed online strategy, although they are probably more concerned in the near term about the company’s admission it is having trouble finding suitable new sites for stores and the difficulties it faces with its supply chain.”
Streeter adds that Primark, although dented by the pandemic, has proved it is resilient.
“For now, Primark is still firing on all cylinders and its robust operating model meant even the pingdemic, which dented summer sales, didn’t prove the bump in the road to veer off course,” she says. “Although fourth quarter sales were disappointing, full-year adjusted operating profits are now forecast to come in even higher than expectation, as lower staff and stores operating costs have meant profit margins have increased.”
