Primark is considering relocating some manufacturing to non-Chinese factories as a result of coronavirus, John Bason, chief financial officer at the retailer’s owner Associated British Foods told Drapers.
The retailer said it had “several months” before its stock levels were affected, but it was now thinking of relocating some of its Chinese manufacturing to south-east Asia, or European countries such as Turkey to mitigate any ongoing impact.
The high street retailer has 500 suppliers in China, which are located predominantly on the east coast. The coronavirus broke out in Wuhan, west of Shanghai, which is also on the east coast. Primark also has five consolidation centres across China. Almost half (45%) of Primark stock currently comes from the country.
“We normally take a large number of consignments before the Chinese New Year so, in that sense, the timing has worked for us,” said Bason.
“It means we’ve got several months, and I don’t anticipate any effect of this in the short term.”
However, the retailer’s primary long-term mitigation strategy is for Chinese workers to return to factories. These are currently running at reduced capacity, Bason said.
Although employee numbers were slowly improving, he told Drapers: “[Currently] it’s low enough that we’ve got committees working on this day by day. The Chinese authorities are working hard to get people back to work, and we’re monitoring and working with our suppliers to improve the number of employees available.”
A growing concern is that textile mills in China are still restricted in output, which could impact Primark’s relocated manufacturing: “My understanding is that the Chinese government gets that and is prioritising getting workers back to the yarn factories and the production of materials,” said Bason.
He added: “This is where the strength of your [supplier] relationships comes in. Direct and strong relationships have always been Primark’s strength.”
Despite the stock concerns, the retailer’s outlook for the full year remains unchanged. Revenues at Primark are expected to be 4.2% ahead of last year for the 24 weeks to 29 February, driven by increased retail selling space.
Across clothing, footwear and accessories, sales are expected to have increased 3% compared with the same period the year before. This has been driven by a strong contribution from new selling space, it said, which was partially offset by a 1.3% decline in like-for-like sales.