Primark fails to recover to pre pandemic levels due to its reluctance to fully embrace digital, says GlobalData

Following today’s release of Primark’s figures for H1, FY2021/22, Louise Deglise-Favre, apparel analyst at GlobalData, a leading data and analytics company, offers her view: “While Primark’s total H1 FY2021/22 sales have grown over 60% on the year, this is due to weak comparatives where COVID-19 restrictions forced stores in Europe to close for most of the period. Versus pre pandemic levels, total sales remained 4% down, with like-for-like (l-f-l) sales 11% lower despite most stores being open for the entire period, except for short-lived closures in Austria and the Netherlands. This will partly be a result of the rise of the Omicron variant towards the end of last year negatively impacting footfall, however it also begs the question of whether its l-f-l sales will ever return to pre-COVID-19 levels now that significant clothing & footwear spend has shifted online.

“Primark continues to outperform in the US, with sales up 35% versus pre-pandemic due to its store expansion in the market, and two-year l-f-l’s rose 2%. However, the retailer is still struggling in its crucial markets of the UK and Continental Europe, with l-f-ls remaining 9% and 14% lower than 2019 respectively. Despite this, Primark remains committed to growing its physical estate, having opened four stores in Continental Europe in H1 FY2021/22 with further expansion in the US, Iberia, France, and Italy in the rest of the financial year. While this strategy has proved successful for the retailer in the past, its reluctance to embrace digital retail will remain its main hindrance in the future as consumers continue to migrate to online shopping. Primark is launching its revamped website in the UK by the end of March 2022, which will allow shoppers to see instore stock, however it has still not indicated any plans to make this transactional. The online channel is expected to continue outperforming post pandemic, with forecast online penetration of 27.6% in 2022 in Europe (versus 18.6 in 2019), so without a transactional site, Primark is at risk of losing market share to other value players that operate strongly online, such as boohoo.com and Shein.

“Primark has stated that it was able to mitigate the ongoing supply chain cost increases throughout its first half thanks to favourable US dollar exchange rates and a reduction in store-related costs, protecting its operating profit margin which stands at 11%. However, the retailer expects this margin to take a hit in the second half of the financial year as raw material and shipping costs continue to rise even further. These issues will likely be exacerbated in the retailer’s Eastern European manufacturing sites of Moldova, Romania and Bulgaria, as the conflict in neighbouring Ukraine is bound to logistically disrupt the area. However, inflationary pressures on shoppers’ discretionary spending will provide an opportunity for Primark as many consumers will feel the need to trade down to value retailers.”