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Analysis: How will Primark cope with coronavirus shutdown?

Primark risks losing its top slot in the UK clothing market because of its lack of a transactional website.

Primark has long been an outlier in the fashion industry as the only high street giant not to have a transactional website. The retailer’s “high-volume, low intake margin, low selling price” model – as it was described to Drapers by CEO Paul Marchant in an interview last year – makes ecommerce a tricky proposition for this retail powerhouse. Marchant was adamant that the business had no plans to launch a transactional website that included home delivery, although he did not rule out a click-and-collect offer in the future.

Primark’s model has served it exceedingly well over the past half century that the retailer has been in business. But as the current crisis has turned off the lights at high street stores across the UK and Europe, the retailer’s reliance on bricks-and-mortar has morphed into a very serious problem, and it is set to lose an eyewatering £650m of net sales per month while stores are closed.

“Primark’s lack of a transactional website has placed it under additional pressure in the midst of the coronavirus pandemic,” says Chloe Collins, senior retail analyst at GlobalData. “The retailer has no way to make up the £650m net sales a month it will lose globally from closed stores. In the UK, it risks falling from its top slot in the clothing market this year, as its two closest rivals – Marks & Spencer and Next – have the benefit of online operations.

“This unprecedented event will provide it with a clear impetus to rethink its bricks-and-mortar strategy.”

Survival is a real word for many retailers in the current climate, but Primark is in as strong a position as any fashion business to come through the crisis. Before the high street was plunged into corona chaos, the value retailer was flying high. Revenue rose by 4.2% to £7.8bn for the year to 14 September, driven by ongoing store expansion. Operating losses in the US – something of an Achilles’ heel for Primark – had been “significantly reduced”, and further expansion in the market is planned.

The coming weeks will undoubtedly be some of the most difficult in Primark’s history. Sensible and serious steps have been taken to preserve cashflow and limit how much excess stock the retailer is saddled with. The company is withholding quarterly rent payments on its leasehold properties in the UK in a bid to prompt urgent conversations with landlords and has cancelled all new orders from suppliers.

It is not the only high street retailer currently without both stores and ecommerce. Footwear retailer Schuh, which has its headquarters in Scotland, has temporarily closed its website amid mixed messaging from the Scottish and UK governments about staff safety. Although the UK government says online retail is “allowed and should be encouraged,” the Scottish advice is conflicting.High street retailers River Island and Moss Bros both announced today [Thursday 26 March] that they are ceasing to trade online to ensure the safety of staff.

More retailers could find themselves unable to offer online delivery if the UK government does choose to enforce even stricter measures to control the spread of infection. Warehouse staff and delivery drivers may not be able to work under tougher rules. The lifeblood of online would dry up and online ecommerce would no longer be retail’s saving grace.

It is difficult to predict how consumers will react once restrictions are lifted, and stores reopen. But shoppers are likely to be extremely squeamish about excess spending for the foreseeable future, which would be a boost for value retailers like Primark.

Whether the coronavirus crisis does finally cause Primark to revaluate its approach to ecommerce remains to be seen. The outbreak of infection has not changed the fact that the retailer’s low-margin business model makes a transactional website very challenging. However, if the crisis permanently alters consumers’ willingness to shop in store – through new health concerns about physical contact and a reinforced preference for ecommerce – Primark may have no choice. Retailers will also be all too aware that stores could be shuttered again in the winter if the virus returns and social distancing measures become necessary again in the colder months.

Creating more resilient and flexible business models to weather retail’s new challenges will be a top priority for all retailers – not just Primark.

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