As Primark sales plummet, is it time to sell online?
Primark last week revealed its crucial like-for-like Christmas sales plunged 10% from pre-Covid levels as footfall slowed due to Omicron fears.
It is the latest pandemic-related blow for the retailer, which has endured two torrid years with lockdowns forcing the closure of its stores which for Primark represent its only sales channel.
Without an online store to fall back on, Primark has been hit hard. The retailer estimated it lost £1.1billion in the first half of its last financial year – when much of the world was in lockdown. Indeed, 305 of its 389 stores were closed last January, including 190 in the United Kingdom.
Although the picture is nowhere near as bleak, the drop in footfall before Christmas as the Omicron variant spread across the UK shows how vulnerable Primark could be if other variants emerge in the years to come. future.
Could launching a transactional website finally protect Primark from this risk? Or would online be too difficult for the value retailer to master?
Is it time for Primark to go digital?
Over the past decade, Primark has been one of the beacons in brick-and-mortar retail, proving that shoppers will flock to city centers if you have great products at great prices.
The value fashion giant shunned online and continued to expand its footprint as rivals such as New Look and Topshop closed stores.
In fact, in 2019 he opened the world’s largest fashion store, a five-story, 160,000 square foot store in Birmingham.
But the decision to avoid the fast-growing e-commerce channel has hurt the retailer over the past two years, when lockdowns forced stores to close and spurred a sea change in online shopping.
At its peak in February last year, e-commerce accounted for 36.8% of all retail sales and Primark’s e-commerce rivals, Asos and Boohoo, saw an increase in sales.
Although this has decreased with the reopening of stores, reaching 26.6% in December, online sales still represent a larger share of retail sales than before the pandemic.
Primark remains committed to not selling online. “Our decisions online will be made in their own context, not because of a pandemic that happens once every hundred years,” said George Weston, chief executive of Primark’s parent company, Associated British Foods, during of the UK’s first lockdown.
Hi Aimee, we can confirm that it is not in our plans to open an online store.
— Primark (@Primark) January 14, 2021
In fact, ABF’s chief financial officer John Bason told Retail Week last year that the closures have actually made its stores more attractive to shoppers.
“There has been an online change in clothing, but it’s almost like we’re unaffected by it – it’s happening around us. On the contrary, the lockdowns have really underscored the value of what we offer.
“We have a fantastic offer and prices that no one else can touch online or offline, and that’s why people keep coming back to us.”
Indeed, Primark is focused on opening more stores, with 100 new stores planned over the next five years as it prepares for further international expansion.
“Primark will eventually have to come online”
However, Peter Williams, former chairman of Asos, Boohoo and Superdry, says Official Retail Journal that while there are significant opportunities for more stores outside the UK for Primark, the retailer risks losing sales in its more established markets.
“Physical retail is neither dead nor dying, but it is shrinking in proportion,” he says.
“The younger generations, taken as a whole, are less likely to shop in physical stores. They grew up with the Internet as a channel for so many elements of their lives – communication, entertainment, information and shopping.
“Primark will eventually have to go online.”
Online retail expert Martin Newman agrees pressure is growing for Primark to go online. “All retailers and brands need to be where their customers are and becoming more of a store-only business will affect their growth prospects,” he explains.
Get the right model online
Williams acknowledges that Primark’s low prices make e-commerce difficult.
“Given Primark’s low prices and narrow gross margin structure, it is difficult for the online channel to be profitable,” he says.
Laura Morroll, director of management consultancy BearingPoint, agrees the challenge for Primark is the online shopping economy where the average retail price of a garment is around £5 and the cost of picking, packaging, online fulfillment and returns processing is higher. than the margin of the product itself.
During this time, the installation costs alone, from warehousing to customer services, will be significant.
Morroll thinks Primark would be better off focusing on building a strong digital presence, which engages customers with the latest trends and drives people to the stores, where they will make the actual purchases, which will often include additional impulse purchases.
The retailer is indeed launching a new website by the end of March, which, although non-transactional, will allow customers to see what garments are available in stores.
Morroll says: “The website gives shoppers the opportunity to discover new products and, importantly, with 2022 upgrades, to check stock availability in preparation for a store visit.
“It leaves stores firmly in the role of a buying channel, giving shoppers the ability to physically engage in brand theater.”
However, Newman is confident that Primark can make it work online. He points out that by increasing customer lifetime value and increasing customer retention by just a few percent online, Primark could cover all the investment costs of starting an e-commerce business.
“Even if you earn a little less per customer online, wouldn’t you rather have a larger share of their overall spend by allowing them to buy however they want? Because that’s what will happen,” he says.
Additionally, Newman recounts Official Retail Journal that if Primark is still concerned about online profitability, it could set a minimum average order value for online purchases.
“At the end of the day, I think they should embrace an omnichannel model and allow their customers to buy the way they want online, offline, search online – buy offline, click and collect , etc. This will increase customer lifetime value and overall profitability,” he explains.
“We don’t live in a one-channel world. Most consumers are multi-channel customers who buy online and offline. They are therefore likely to increase customer lifetime value by offering customers the option to shop the way they want with Primark. »
There is no doubt that Primark still has plenty of opportunities for growth in the physical world, but by ignoring online it can, over time, become disconnected from the way its customers want to shop and lose a vital share. of their expenses.
If the fast fashion chain manages to get its model online, it could not only be Covid-proof, but also future-proof its business.