Should Primark launch an online channel?
While the majority of Retail Technology readers say yes, the retailer has ruled out a move online despite posting strong sales and operating profit off the back of a strong Christmas season. Find out what the experts think here...The first in a new series of expert, exclusive comment looks at High Street retailer Primark and whether it should make a move online in response to the Ask The Expert poll on the Retail Technology homepage.
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Primark was founded in Dublin in 1969. The close eye the company keeps on its margins have seen it consolidate its fast-fashion value proposition based around a traditional High Street store model.
Trading ahead of expectations
First-half sales at the Associated British Foods company were “exceptionally strong,” it said in a pre-close trading update 25 February. Sales were expected to be 23% ahead of the same period last year and 25% ahead at constant currency.
Citing higher operating profit than in the same period last year, due to lower cotton prices and better trading, the company said this performance was driven by very strong like-for-like sales growth, a substantial increase in retail selling space and superior sales densities in the larger new stores.
Discounting online pressures
Peter Saville, partner at advisory and restructuring firm Zolfo Cooper, commented: “Primark’s stellar success flies in the face of conventional wisdom. While the rest of the retail world is obsessing over online selling and multichannel strategies, Primark is powering ahead despite it having no online business at all.”
Saville said Primark has become much more fashion-focused, with fast-turning stock and a nod towards the latest trends. As a result, the company has been able to offer low-cost fast fashion at a time when most consumers are keeping a careful eye on their spending.
“Primark stores in major shopping destinations like Westfield Stratford City and London’s Oxford Street have been attracting cash-strapped consumers in droves, driving footfall to these prime retail spaces,” he added.
Indeed, the bricks-and-mortar retail recipe still seems to be working for Primark, as it opened 15 new stores during the last six months including four in the UK and its second store on Oxford Street.
Getting e-commerce to pay
Despite this recent success Primark supply chain director, Martin White, called on the industry to develop more cost effective e-commerce delivery models before the retailer would look to transact online, speaking at the Metapack Delivery Conference, which took place early in February.
Primark’s operating profit is 10.2% of sales, less than at Inditex and H&M, according to data compiled by Bloomberg.
White pointed to the prohibitively high costs of setting up a separate web store to sell and fulfil Primack’s relatively low value, low-margin merchandise as being the main barrier to any potential profitability. This why the experts broadly agree that Primark should not launch an online channel.
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