Primark’s dominance threatened by COVID-19

Following today’s release of Primark H1 figures for 2019/20,

Pippa Stephens, Retail Analyst at GlobalData, a leading data and analytics company, comments:

‘‘Though Primark’s performance for H1 FY2019/20 once again displays impressive revenue growth, particularly internationally, the outbreak of COVID-19 will drastically impact its performance for the rest of the financial year, with all of its stores forced to temporarily close by the end of March. UK l-f-ls remained challenging throughout H1, down 1.7%, whereas Eurozone l-f-ls were marginally positive at 0.2%, driven by strong performance in France and Italy. Following its return to normal trading, Primark must shift its focus from opening new sites to making improvements to its existing UK store estate, through greater roll-out of its experiential features beyond just flagship locations, and the refurbishments of older stores, to regain footfall.

Primark’s lack of a transactional website means that it has no way of making up the £650m net global sales a month it usually makes through its stores, and so risks losing its position as the UK clothing market leader this year. The UK clothing & footwear sector’s online penetration is expected to reach 36.5% in 2020 due to widespread store closures, with the long term shift to online spending expected to be accelerated by COVID-19. While the retailer is confident that it has enough cash to remain resilient to the impacts of the pandemic, the unprecedented event will have likely given Primark reason to rethink its bricks-and-mortar only strategy for the future.

As its stores are usually large and relatively crowded, it is likely that Primark will be one of the last retailers to be allowed to open when governments start to ease lockdown restrictions. The retailer has voiced its dedication to keeping its staff and customers safe once stores do resume trading, even if that means ensuring there are fewer people shopping at any one time, which will inevitably impact sales. However, its value proposition will put it in good stead to quickly regain appeal, as economic uncertainty and increased unemployment rates will drive many consumers to trade down.

Primark’s ethical commitments amid the virus will be remembered by consumers, aiding its brand perception in the long term. All of its directors have agreed to a pay cut to better support the rest of its employees, and the business has also recently donated 74,000 items to staff at London’s Nightingale Hospital, alongside contributions to hospitals across Europe, highlighting its commitment to going above and beyond its usual call of duty. The business closure has had a knock on effect to its suppliers, with Primark being forced to cancel all future orders. However, it committed to taking all product orders that were finished and due for handover before April 17, as well as paying for another £370m worth of stock, which is either in production or completed. It has also established a fund in Asia to support textile workers who have been affected by order cancellations. These actions will help protect the future of its supply chain, and will also strengthen its relationships, as suppliers will begin to prioritise retailers that have shown good faith amid the crisis, rather than players like New Look and Arcadia, which have been delaying payments.”

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