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Coronavirus: Ecommerce remains uneconomic for Primark

Primark will remain a bricks-and-mortar-only retailer despite the temporary shutdown of its entire global store portfolio due to coronavirus restrictions, John Bason, chief financial officer at the retailer’s owner, Associated British Foods, has told Drapers.

Net monthly global sales have fallen from £650m to zero, as all of Primark’s global store estate is currently closed because of the coronavirus pandemic.

However, ecommerce is still not an option for the value retailer, Bason told Drapers.

“The economics of online remain the same, coronavirus hasn’t changed that,” he said. “The focus is coming back into our estate strongly for our consumers.” 

ABF this morning announced that it has the financial headroom and cashflow to meet “even the most pessimistic” of its forecasts. 

Bason confirmed: ”We can put any worries about financial headroom to the back of our mind. That is very important. We’ve got the wherewithal to carry Primark through with sales below where they were before for a long period of time.”

ABF has written down the value of the chain’s stock by £284m to reflect realistic pricing when stores re-open.

“We’ve got a lot of stock on hand but that’s not a problem,” said Bason. “It just means that we carry it through to next year. We will not dump stock. 

”The complexity with re-opening stores is which countries open up and when. We want to make sure that the stock in the stores is appropriate for both the customers and the time of year [in those countries].”

This week Primark announced its commitment to paying for all product that was in production, finished and planned for handover by 17 April. The retailer cancelled all new orders on the 23 March. 

Primark has also pledged to pay the wages of workers who were producing Primark orders that have now been cancelled. 

“We’ve worked out a way now to have a responsible position with our suppliers and one that recognises our cashflow but also their position and to continue to work with them,” Bason added. 

The value retailer held its quarterly rent payments in March to enter negotiations with landlords over coronavirus rent concessions. 

Although Bason would not give a full update, he told Drapers: “We have made agreements with a number of landlords and which will include either delay of lease payments or in some cases a holiday.” 

The CFO praised the government’s economic support for the retail sector: “I would like to thank the government and in particular the chancellor. The response of the government to the predicaments of many companies, in particular for us the Job Retention Scheme, was very speedy and responsible.” 

On the retailer’s financial position, ABF chairman Michael McLintock said this morning: “We have taken steps to confirm the availability of existing, and to agree new, borrowing facilities.” 

“Our assessment of ongoing concern shows that, even though this is a time of unprecedented uncertainty, the group has ample cash liquidity to deal with the likely challenges in the year ahead.” 

At the half year, the group had net cash of £801m and an undrawn, committed revolving credit facility (RCF) of £1,088m. Funds were drawn down in full on the RCF on 18 March. 

ABF did not seek a waiver for its covenant test for September 2020 but has confirmed a waiver for February 2021. The group has also been granted access to funding under the Bank of England’s Covid Corporate Financing Facility. 

As at the date of the interim results to 29 February, the group had available central cash on hand of £1.5bn.

 

Readers' comments (1)

  • Not sure Primark has investigated to enough granularity. Tech is available to make ‘buy online, pick up in store’ definitely a workable model.

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