Primark, the renowned fashion retailer known for its affordable clothing and lack of online presence, is projected to experience a staggering loss of £1.05 billion in sales for the first half of the year due to the current lockdown measures. Since the company solely relies on physical stores, the extended closures have had a severe impact on its revenue.

According to Primark’s update for the 16-week period leading up to January 2nd, retail revenue decreased by 30% year-on-year, totaling £2.031 billion. The company emphasized that the restrictions imposed in the UK and Europe during November and December had a significant effect on its business. Store closures during this 16-week period resulted in an estimated £540 million loss in sales.

However, when its stores were open, Primark saw relatively strong trading performance, with sales down only 14% on a like-for-like basis compared to the previous year. The company even opened five new stores during this period, which received positive feedback from customers. Primark noted that the performance of its stores varied depending on factors such as remote working, reduced commuting, and decreased tourism.

Retail park stores recorded higher sales compared to the previous year, while shopping center and regional high street stores experienced lower sales. City center stores, particularly those heavily reliant on tourism and commuters, witnessed a substantial decline in footfall. Excluding the 16 major city destination stores, trading for the entire estate was down only 10% on a like-for-like basis. Primark’s US stores, except for Boston, maintained a strong trading performance and achieved sales in line with the previous year.

During the festive season, Primark witnessed strong sales in stores that remained open, indicating the appeal of its product offering. Christmas and gifting lines were completely sold out, and product categories related to staying at home, such as nightwear and loungewear, performed exceptionally well. The company also successfully reduced markdowns compared to the previous year.

Similar to its strategy last spring, Primark plans to warehouse approximately £200 million worth of autumn/winter goods for later sale. It has assured its suppliers that all orders will be honored. Additionally, the company has managed to reduce operating costs by 25%. However, with 305 stores currently closed across the UK and Europe, there is limited scope for further cost-cutting measures.

Considering the ongoing store closures and assuming they continue until the end of the current half-year (February 27th), Primark estimates a loss of over £1 billion in sales. This projection is wider than the previous estimate of £650 million revealed on December 31st, which was based on closure dates announced at that time. Consequently, the adjusted operating profit for the first half of the year is expected to break-even, compared to £441 million in the previous financial year. If the stores remain closed until the end of March, Primark foresees an additional loss of £800 million in sales for the first three months of the next half-year, resulting in a profit reduction of £300 million.

Despite these challenges, Primark remains determined to open new stores, although some openings have been delayed due to lockdown measures. The company plans to add a net 0.7 million square feet of selling space in the current financial year and aims to open 15 new stores in countries such as Spain, the US, Italy, the UK, France, the Netherlands, Poland, and Czechia (Prague). Primark also intends to downsize its Boston Downtown Crossing store to 38,000 square feet, citing improvements in store profitability and the customer experience. It has secured leases for new locations in New York, Italy, France, Poland, and Czechia.

Despite the current difficulties faced by Primark, the company remains optimistic about its future and is committed to expanding its presence in key markets. While the impact of the ongoing pandemic on brick-and-mortar retailers is undeniable, Primark’s focus on providing value-for-money fashion and its strategic store openings position it well for recovery once lockdown measures are lifted.

Useful links:
1. Primark’s US Launch: A Look Back
2. Primark Sees Festive Demand Strong but Half-year Below Previous Forecast