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Associated British Foods contends with volatile Primark trading

by LLB Editor
13th Sep 21 11:12 am

It’s not easy being a retail business and the impact of Covid-19 is still being felt as events continue to disrupt trading.

Even though lockdown measures are now (hopefully) a thing of the past, Associated British Foods-owned Primark still saw volatile trading over the summer because of people being told to self-isolate. There remains a real risk of further disruption if there is an autumn flare-up of Covid as more people interact in society and the Delta variant still rages.

“Primark has a simple business model – sell a wide range of clothes and do so at the lowest price possible. Very few people leave its stores with only one item in their shopping bag as there is considerable temptation to keep popping items in the basket as everything is so cheap,” according to Russ Mould from AJ Bell.

“That puts pressure on the company to keep its stores as fully stocked as possible to take advantage of the typical customer’s shopping habits. Primark has flagged that supply chain issues are likely to hit its autumn/winter inventory levels, so the company will no doubt have to do some clever rearranging of its store layouts to make them look as full as normal.

“Covid restrictions have also impacted its progress with store expansion. It’s having trouble weighing up potential new sites which is negative for a brand that has thrived from planting new flags in various parts of the world.

“Sustaining the store rollout is very important when you consider that Primark doesn’t sell its products online. It’s always said that the economics of the web don’t add up when its product price tags are so cheap.

“On that front, it is interesting to see the company announce plans to launch a new website but there is no sign that this will be a transactional one. Historically it has used the online channel just to showcase products and the new plan seems to be centred on letting customers see which products are available on a store-by-store basis.

“Knowing if something is stocked in your local store or not is useful if you want to avoid a wasted trip into town, but equally it’s a lost opportunity for Primark to sell them something else. Just remember its success has been led by people visiting its stores, browsing the aisles and walking out with products they weren’t initially intending to buy.”

 

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