December 3, 2020

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Why Primark doesn’t have a webshop yet, even if it lost …

Why Primark doesn't have a webshop yet, even if it lost ...

A long queue for Primark from Ghent on the last day before the second closure.

Photo: BELGA

The lockdown during the first corona wave cost Primark a quarter of its sales – no less than 2.22 billion euros. 60 percent of his profits also went up in smoke. Due to the corona, almost all branches had to be closed, and since the retail chain does not have a webshop, sales came to a standstill. It won’t look good in the coming weeks either, as more and more countries are banned again.

These are numbers that will make you dizzy: Primark recorded a sales decline of 24 percent to 6.5 billion euros in the 2019-2020 fiscal year (ended September 12). The operating result fell by 60 percent to 402 million euros.

No fallback option

The fact that Primark was hit so badly was partly due to itself. The chain is one of the few, certainly in the fashion industry, that does not yet have its own web shop. As a result, customers did not have any alternative options while they have one at H&M, Inditex (Zara & Co.) and Uniqlo, for example. These competitors saw double-digit online sales growth – Zara & Co even recorded a 75 percent increase during the lockdown – while Primark sold zero-point-zero.

While e-commerce by no means made up for the loss of physical sales to the competition, having a web store like this ultimately makes a huge difference. Just take a look at Uniqlo, which presented its full 2019-2020 annual results back in mid-September. The Japanese managed to limit their sales decline to 12.3 percent and beat Primark by half, while profits fell by “only” 42 percent, a third better than Primark.

The end of the misery is not yet in sight for Primark, as more and more countries are blocked again and stores that are not absolutely necessary have to close their doors. If the lights go out on Thursday in Primark’s home country Great Britain, 57 percent of all stores in the clothing chain will already be inactive. In an update for investors, parent company ABF estimates the loss of the upcoming European locks at an additional 416 million euros.

“No online, no problem”

A person would then think: a donkey does not hit the same stone twice. This is not good. There is still no talk of a Primark webshop. After all, it is a well-considered decision by the retailer not to set up an online store. Primark is and will remain a “budget chain” with dirt cheap stuff. The profit margins are very low, but this is offset by the fact that customers buy a lot more pieces in the shop, precisely because it doesn’t cost anything anyway. A business model that doesn’t rhyme with a web shop that simply costs money, let alone shipping costs.

This was confirmed this summer after the initial lockdown by analysts at investment bank UBS. In a study with the meaningful title “No online, no problem”, they compared the profit margins and the average number of purchases at Primark with those of competitors such as Zara, H & M or the British online fashion player Asos. “What Primark offers its customers is actually not possible online. As long as there is a demand for T-shirts of just over 2 euros, people have to go to the store, ”write the analysts at UBS. “Primark could raise prices to make money online, but that would remove the unique selling proposition and also run the risk of ending up in the mid-market, where it is difficult to differentiate from the competition.”