Primark’s value proposition drives strong demand among price conscious consumers, says GlobalData

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Following today’s release of Primark FY figures for 2019/20, Pippa Stephens, retail analyst at GlobalData, a leading data and analytics company, comments: ‘‘While Primark was one of the worst hit fashion retailers during the peak of COVID-19, with its lack of a transactional website causing revenue to drop by £1.9bn to £5.9bn in FY2019/20, Primark has exhibited impressive resilience since stores resumed trading. The retailer’s value proposition and wide appeal product ranges led to pent up demand while its estate was closed, with long queues being experienced outside many of its locations upon reopening. Though adjusted operating profit for the financial year understandably came in significantly lower than FY2018/19, this exceeded the £300-350m range previously estimated in July, as higher basket sizes helped it to counteract the impact of reduced footfall. While there has been increased discounting at many of its fashion competitors, Primark has also managed to minimise markdowns during the period, enabling it to remain more profitable.

“Primark’s retail channels have experienced ongoing disparity since stores reopened, with city centre locations dragging down its top line sales across all regions due to a decline in tourism and commuters. Since social distancing measures are likely to be in effect across the majority of its regions for the foreseeable future, consumers are likely to remain cautious about visiting these busy areas for some time, leading to a long-term decline in footfall.  Its retail park stores have been much more resilient, with trading reportedly higher than last year, so Primark should put greater investment into these locations once they can reopen through longer opening hours and store refurbishments to help attract shoppers. While COVID-19 has caused a delay in new store openings, 12 locations have been opened during the year, with the positive performance of its Warsaw store boding well for its second Polish opening in Poznan next year.

“As a second wave of lockdowns starts to spread across Europe, Primark is now being forced to temporarily close 57% of its estate once again, driving it to lose an estimated £375m worth of sales as a result. However, having bounced back impressively following the initial lockdown at the beginning of the year, Primark should feel optimistic that sales will rebound quickly in time for Christmas, given that current measures are not extended past the beginning of December. While the retailer sensibly delayed its autumn/winter purchases this year due to the pandemic, the inability to trade through the majority of it stores over the next month may lead it to have an surplus of stock left over at the end of the year. Primark should strive to refrain from discounting this stock as much as possible, as this would have a huge impact on its profit margins, and instead hold a proportion of its winter products until 2021, when the trading environment will hopefully be less volatile and consumers’ appetite for fashion will have largely recovered.”