Is there more to Primark's woes than the weather?
A warm winter and a cold spring have been blamed for a fall in sales at value fashion retailer Primark. But its lack of e-commerce also leaves it without the flexibility to highlight more transitional ranges and weather appropriate collections online, according to Bernadette Kissane, senior analyst for apparel and footwear at Euromonitor International.
Primark's unstoppable status may have to be revoked. Based on Associated British Foods' most recent trading update, as the company enters the closing period for its full year results to 17 September, Primark is expected to report a 9% increase in sales at constant currency, predominately attributed to a 9% increase in selling space and strong performances in Ireland, Spain and France.
However, a predicted 2% decline in like-for-like sales marks the first drop in same-store sales in 15 years. Unseasonable weather has been determined as the cause; an unusually warm pre-Christmas season, combined with a chilly March and April, left Primark stumbling to convince consumers to make purchases. Although the weather is often credited with sabotaging clothing sales, is it possible there is more to Primark's troubles?
Brexit woes and wins
The UK, as Primark's core market, accounting for over 50% of sales, typically provides a robust performance, outpacing all other brands and retailers in the market. However, it appears trading may have not quite lived up to expectations this time around, with the company stating: "The UK performance was in line with the group, with good trading in periods of more typically seasonal weather."
It seems reasonable to suggest high summer sales are also likely to have taken a hit while the country was gripped by the unfolding events of the EU Referendum. The full impact of Brexit is yet to be revealed; however, currency fluctuations have hit many apparel brands in recent months. Primark's practice of taking out forward currency contracts has provided a buffer and will not impact this financial year; however, if the strengthening of the US dollar continues, profit margins will be adversely affected next year.
Maintaining its price leadership is of high priority to Primark, suggesting it will absorb as much of the increase in costs as possible. This is nothing new for the brand; however, the long-term projection of the UK's slowing economy may prompt a review of sourcing practices to keep prices down and lead to a reduction in product quality.
This is a risky strategy. While price is of great importance during tough economic times, as proven by Primark's success during the 2008 recession, consumer attitudes are steadily shifting towards value for money. If the company is seeking to encourage full price sales and boost like-for-likes, then investment in quality and design will be required.
Additionally, Primark's vulnerability to weather conditions is further enforced by its lack of e-commerce. Online operations provide brands with flexibility, enabling a shift in focus onto more weather appropriate garments and transitional designs that would find favour with consumers. In comparison to in-store visual merchandising that requires a lot of time and effort, a website can alter which products to promote in real time, providing a buffer during 'unseasonable weather.'
Perhaps more telling is the soaring double-digit growth reported by e-tailers Asos and Boohoo.com. At a time when many fashion players are reporting a drop in sales, Asos reported a 21% increase in revenue during its H1, while Boohoo.com now expects sales to grow by 28-33% during its FY2016. Additionally, behemoths H&M and Inditex have proclaimed to be easing off their aggressive store expansion plans as digital developments take precedence.
Traditions die hard
Although Primark's conservative approach to fashion retailing has provided substantial growth so far, as consumers increasingly move to online platforms and brands place a greater emphasis on this sales channel, it begs the question how long Primark can afford to stay offline.
Given the brand continues to diversify its product portfolio and invest in performance products, such as its sportswear range, the launch of a transactional website could promote cross-category shopping and generate brand awareness. Certainly, store expansion and low prices are still providing growth, but for how long, only time will tell.