Primark has implemented operational plans to try and manage the consequences of the store closures

Primark has implemented operational plans to try and manage the consequences of the store closures

Value clothing retailer Primark has warned of a hit from lost retail sales of more than GBP1bn (US$1.36bn) due to the pandemic lockdown as it revealed revenues were 30% lower than last year.

In a trading update today (14 January) for the 16 weeks to 2 January, the retail division of Associated British Foods (ABF) said it currently has 305 stores closed, representing 76% of its retail selling space.

Primark said it has implemented operational plans to try and manage the consequences of the closures, and has been able to mitigate some of the trading impact by cutting overhead costs by 25%.

The retailer, however, is estimating the loss of sales in the period of closure during the 16 weeks at GBP540m. Assuming all of the stores currently closed remain closed under the financial half-year – 27 February – Primark is expecting the loss of sales to amount to GBP1.05bn, up from its previous estimate of GBP650m.

The value fashion retailer is particularly hard hit by store closures as it does not operate a transactional website.

"The impact of store closures on Primark's performance is significant," said ABF. "We now expect full-year sales and adjusted operating profit for Primark to be somewhat lower than last year."

Adjusted operating profit in the first half is expected to be broadly break-even, which would compare to GBP441m for the same period last year.

Primark said while stores were open, trading was strong, with sales down 14% on a like-for-like basis compared to last year. The level of markdown was also substantially lower than the year prior. Primark said it will warehouse some GBP200m of autumn/winter stock for later this year, and that all orders placed with suppliers will be honoured.

Under the scenario the entire estate remains closed until the end of March, Primark is estimating a further loss of sales of some GBP0.8bn over the three month period, and a consequent reduction in profit contribution of some GBP0.3bn.

Despite the pandemic delaying some store openings, the retailer is still expecting to add 0.7m sq ft of additional selling space in this financial year, with 15 new stores: five in Spain, three in the US, two in Italy, one in each of the UK, France and the Netherlands, a further store in Poland, and its first store in Prague. New leases have also been signed in New York, six in Italy, three in France, Katowice in Poland and Brno in Czechia.

Gemma Boothroyd, associate retail analyst at GlobalData, believes Primark's finger on the pulse to offer an appealing product mix, coupled with its decision to carry over GBP200m of transitional stock to the following year has allowed the retailer to discount less, mitigating the impact of its lower sales volumes.

"But with a dark period of no UK sales ahead, Primark is wise to focus on geographical expansion, as it plans to open 15 stores spanning eight countries in FY2020/21, including its first store in the Czech Republic," she adds.

"With a third lockdown currently in effect across England, Primark fans have taken to Twitter, asking the retailer to consider an online offering. Yet Primark is determined to resist, lamenting that it wouldn't be able to maintain its low value prices. Although it would undoubtedly be a momentous undertaking to manage the logistics and warehouse space needed for its expansive inventory, other value brands such as Matalan and George have been successful in maintaining their low prices while running digital operations, proving it can be done. The growing preference for online shopping is not merely a pandemic-induced phenomenon, and with losses caused by temporary store closures threatening to reach GBP1.05bn for H1, there's no time to waste for Primark. While it has maintained a loyal customer base during rampant store closures, if the retailer doesn't digitise its offer soon, it will continue to lose out to online competitors."

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