Primark defies switch from high street to online as sales surge continues
Primark is axing its internet experiment to sell its fashion on the Asos website and is to open one million sq foot of retail space, defying the retail industry switch to online, as its sales continue to surge ahead.
While other clothing retailers are pulling away from the high street, the budget clothing chain is opening more stores in the UK and stepping up expansion abroad after revealing that it expects a 22% surge in sales in the year to 14 September.
Profit margins were also up as the retailer benefited from lower cotton prices and was able to clear more of its summer ranges thanks to the long spell of warm weather. Desirable fashions such as coloured jeggings, mini-skirts and logo sweatshirts helped boost underling sales to close to 5% for the full year while Primark also gained from opening several new stores.
The sales boost came despite Primark’s involvement in the high-profile factory disaster in Bangladesh where more than 1,200 workers died when the Rana Plaza building collapsed.
John Bason, finance director for the clothing chain’s parent company Associated British Foods (ABF), said: “We believe we are taking share from across the market. Primark is quite differentiated and has got an ever-wider appeal.”
He added that Primark was also benefiting from greater consumer confidence in the UK. “The pressure on disposable income has clearly come off, it is not getting any worse, but consumers are careful in how they are spending money,” Bason said.
Despite that, Primark is not renewing a trial with online retailer Asos which comes to an end in the next few weeks and does not currently intend to try selling online with other partners or via its own website.
Instead, Primark will be improving its website to “showcase” products more effectively and to make it more interactive.
Bason said the trial with Asos, the fast-growing fashion site, had provided some insight into online retailing and had been a success in terms of sales but “The best way to get profitable growth is on the high street.”
Primark will open less new space in the UK this financial year but will nearly double the pace of growth abroad as it moves into France with its first store opening in Marseille in December and four more stores by September next year. New outlets are also planned in Holland, Spain and Germany.
In the past year parent group ABF has opened 16 new Primark stores, bringing the total to 257 shops or 9m sq feet of selling space.
Elsewhere in the group, grocery revenues and operating profit improved, with ABF’s Twinings and Ovaltine brands doing well. However, profit from its Silver Spoon brand will be lower because of an especially competitive year within the UK packed sugar market, it said.
Revenues and profit in its agriculture business will also be higher than last year, while but the sugar divisions’ profits are likely to be lower than expected, analysts said.
The food and retail group said its British Sugar business produced 1.14m tonnes of sugar, less than the 1.32m tonnes produced the year before as a result of poor growing conditions during 2012, which led to lower beet yields and sugar recovery.
“Looking forward to 2013-14, crop yields are expected to be slightly below average but we expect sugar production to at least achieve sales quota,” it said in the update.
Martin Deboo, an analyst at Investec Securities said: “With the 2012/2013 sugar profit bubble deflating, it is now Primark that needs to carry the profit can for ABF going forward.”
Bason countered that ABF’s grocery business continued to see growth, but the shares closed down 33p at £18.18. A year ago they were changing hands at £12.89.
The FTSE 100 company will publish its full-year results on 5 November.