UK value fashion retailer Primark has cancelled all orders with its suppliers and closed all of its stores – including the 189 it operates in the UK – as countries around the world go into lockdown to try to halt the spread of coronavirus.
The retail group, owned by Associated British Foods (ABF), has also terminated orders already in production at factories, and is expected to lose GBP650m (US$763m) of net sales per month while its stores are closed.
“This situation has been so fast-moving,” says CEO Paul Marchant. “We could not have foreseen that over the course of a week, our stores in every country in which we operate…have had to close.
“We have large quantities of existing stock in our stores, our depots and in transit, that is paid for and if we do not take this action now we will be taking delivery of stock that we simply can’t sell. This is unprecedented action for unprecedented and frankly unimaginable times.”
He continues: “This is profoundly upsetting for me personally and for all of the team at Primark. We have worked alongside so many of our suppliers for many years and value our relationships enormously. We recognise and are deeply saddened that this will clearly have an effect throughout our entire supply chain.”
Marchant says the retailer is in “close and regular contact” with its suppliers and hopes normal trading relationships can resume “as soon as possible.”
“In the meantime, we are urging, in the strongest possible terms, governments in the countries from which we source our products, to take action in support of their local businesses and workers, in the same way that the UK and many European governments are doing.”
The retail giant operates through 376 stores in 12 countries, but does not have an online presence.
The company says it is closing its UK stores until further notice. Its UK business represents 41% of sales.
The retailer says a variety of workstreams have been established to mitigate the effect of the contribution lost from sales and all expenditure is being reviewed. In the first instance, Primark has implemented a “significant” reduction in discretionary spend.
“We are making good progress in also reducing fixed costs following discussions with counterparties, in particular landlords, and welcome the recently announced government support in the countries in which our stores operate. As a result, we currently estimate being able to recover some 50% of total operating costs,” the company says.
Chloe Collins, senior retail analyst at GlobalData, says Primark risks losing its top spot in the UK clothing market as its lack of a transactional website means it has no way of making up the GBP650m net sales a month it will lose globally from its closed stores.
“In the UK, it risks falling from the top spot in the clothing market this year, as its two closest rivals M&S and Next have the benefit of online operations – with the latter most likely to secure sales over the next few months thanks to its strong branded offer and efficient fulfilment.
“Though Primark has previously denied that launching a transactional website is in its short-term plans, this unprecedented event will provide it with clear impetus to rethink its bricks-and-mortar only strategy.
“After months of social distancing and self-isolation, consumers are expected to prioritise spend on leisure and experiences more than ever, meaning overall non-food retail spend will struggle to rebound in H2.
“While mid-market players are likely to lose out, GlobalData expects Primark’s value proposition to retain its top-of-mind appeal. When stores reopen, heavy discounts will be needed to clear existing seasonal summer stock that will have a limited selling period. However the company’s decision to cancel all future production orders will at least mitigate these risks and prevent it from becoming overstocked.”
Primark joins retailers including John Lewis, which this weekend announced it will close all 50 of its shops temporarily from today (23 March) for the first time in its 155-year history. Others include Arcadia Group, which encompasses the Topshop and Miss Selfridge brands, New Look, Kurt Geiger, and River Island.
In a trading update last week, ABF said it had been building inventories in advance of Chinese New Year and was well stocked with cover for several months.
Primark posted operating profit growth of 8.3% to GBP913m (US$1.07bn) last year, and sales growth of 4.1% at constant currency.
Click here to find out which retailers are shuttering stores as a result of the coronavirus (Covid-19) impact.