Lack of ecommerce costs Primark dearly - SwiftERM

Lack of ecommerce costs Primark dearly. Over the last six decades, Dublin-headquartered Primark has made a name for itself as a keystone high-street player, basing its business model on offering discount pricing at physical locations while shunning the ecommerce arena. While the choice enabled the firm to pass savings onto the consumer until now, however, the lack of an online platform during lockdown means Primark could lose £1 billion in sales.

The lockdowns brought in to combat the coronavirus over the last year have been little short of catastrophic for the UK retail scene. With sales figures already flagging for years prior to the ensuing crisis, the forced closure of bricks and mortar establishments deemed non-essential has seen many high street presences pushed to the brink of collapse – even with the Government providing financial support via its job preservation schemes.

While the retail sector has universally endured a grim period of trade, however, some stores have been better positioned to weather the storm than others.

Lack of ecommerce costs Primark dearly

In recent years, the boom of ecommerce has offered many brands a new lease of life, with benefits of digitalisation and the creation of omni-channel shopping experiences boosting convenience and reducing costs for the consumer. Due to these factors, as well as the proliferation of available digital shopping channels, the online market had already grown steadily across the world – accounting for more than one-fifth of total non-food consumer goods sales in the UK alone long before the Covid-19 pandemic drove even more shoppers to do their business digitally.

As the coronavirus outbreak upended the way people worked and lived around the world, businesses of all shapes and sizes had to scramble fast to keep operational. Those that had already reached a degree of digital maturity were able to react faster than those that had been unconvinced of the merits of transforming – but unfortunately for Primark, the discount high street staple was not in such a condition when lockdown hit.

The company has traditionally favoured using price-cutting to draw large physical crowds over the idea an online offering could drum up business – suggesting it was too expensive to be profitable – but the longer the pandemic lasts, the more damaging this stance may become.

By May 2020, Primark had already stated its sales had gone from £650 million each month to zero, as the coronavirus has forced it to close in Europe and the US. According to the Chief Executive of Associated British Foods, which owns Primark, without government furlough schemes, this would have seen many of Primark’s 68,000 European staff lose their jobs. George Weston also confirmed to the BBC that Primark had written down the value of its clothing stock by £284 million, but he still insisted that the situation did not look likely to see Primark change tack.

Associated British Foods is understood to be cash-rich compared to many retailers, with it being reported then that it was holding £801 million in cash and a £1.09 billion loan agreed – meaning it can afford to ‘wait out the storm,’ while possibly benefitting from the collapse of some of its nearest rivals to boot. Eight months later, however, with no end of the pandemic in sight, that approach looks increasingly tenuous.

January 2021 has seen AB Foods forecast lower full-year profits once again, with sales losses from store closures potentially rising to £1.05 billion under new restrictions to control the spread of Covid-19. Sales losses in November and December came to £540 million, while retail revenue fell 30% to £2.031 billion, and the company’s revised sales loss figures now assume that stores remain closed until February 27th, after the UK Government imposed a full lockdown at the start of January.

Now the UK is easing out of lockdown, there is no guarantee that shoppers will happily return to stores immediately. Under lockdown and weary of infection, consumers have warmed to the idea of using ecommerce for everything, from grocery shopping to financial transactions – something which could prompt long-term behavioural changes that could further hurt Primark’s online-resistant brand.

Exemplifying this, even when stores remained open for brief windows during 2020, Primark saw a 14% like-for-like decline in sales. Sales at out-of-town retail park locations were higher than the year before, but shopping centres and regional high streets suffered, as people were wary of congregating during the pandemic.

 

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