Primark has written to suppliers asking them to put a halt on all current and future production and the purchasing of any materials for the retailer.
“This situation has been so fast moving – we could not have foreseen that over the course of a week, our stores in every country in which we operate, with the exception of the UK, have had to close,” Primark CEO Paul Marchant said of the coronavirus outbreak. Its 189 UK stores will close from tonight (Sunday 22 March).
”We have therefore been left with no option but to take this action,” Marchant continued. ”We have large quantities of existing stock in our stores, our depots and in transit, that is paid for and if we do not take this action now we will be taking delivery of stock that we simply can’t sell. This is unprecedented action for unprecedented and frankly unimaginable times.”
Drapers understands that Primark will continue to honour all orders already shipped or delivered to its warehouses or stores.
Marchant said: “This is profoundly upsetting for me personally and for all of the team at Primark. We have worked alongside so many of our suppliers for many years and value our relationships enormously. We recognise and are deeply saddened that this will clearly have an effect throughout our entire supply chain.
“We are in close and regular contact with our suppliers and very much hope that our normal trading relationships can resume as soon as possible. In the meantime, we are urging, in the strongest possible terms, governments in the countries from which we source our products, to take action in support of their local businesses and workers, in the same way that the UK and many European governments are doing.”
Primark announced last week that the closure of stores across Europe could lead to a loss of £190m in sales over the coming month. As a result of the ongoing spread of coronavirus across mainland Europe, the value retailer has had to close stores in France, Spain and Austria, accounting for 20% of its selling space and 30% of its sales.
Since then, and following the closure on Sunday of all stores in the UK which represented 41% of sales, all 376 stores in 12 countries are now closed until further notice. This represents a loss of some £650m of net sales per month.
A variety of work streams have been established to mitigate the effect of the contribution lost from these sales and all expenditure is being reviewed. In the first instance, Primark has implemented a significant reduction in discretionary spend. The retailer said it is making good progress in also reducing fixed costs following discussions with counterparties, in particular landlords, and welcomes the recently announced government support in the countries in which our stores operate. As a result, it currently estimates being able to recover some 50% of total operating costs.
The group said it has a strong balance sheet, substantial cash liquidity with some £800m of net cash at the half year, together with a revolving credit facility of some £1.1bn. Therefore, total available liquidity is £1.9bn.
Elsewhere, New Look has also put a halt on all current and future production until it is able to review the ongoing situation, Drapers can reveal. It is understood no decisions have yet been made about existing spring 20 and autumn 20 orders.