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Primark strategy paying off for ABF

Primark's parent company Associated British Foods (ABF) has this week revised its profit forecast upwards following an encouraging performance from the clothing retailer over the last few months.

In a pre-close period trading update, the group said that adjusted operating profit for the second half will be ahead of expectations and adjusted earnings per share for the full year "will show good progress". Sales at Primark for the full year are now expected to be 21% ahead at constant currency, with this improvement attributed to more selling space and an expected 5% increase in like-for-like sales.

Earlier this year Primark, which has been slow to enter the world of eCommerce and still does not have its own transactional website, agreed a partnership with online fashion house Asos to sell products through its site. It has been confirmed this week that this relationship will end in the coming weeks, although there are no plans for the business to launch its own eCommerce site yet.

So what will Primark have learnt from the tie-up? The retailer has not offered any official statement on how sales through the third-party website have performed, but it will have undoubtedly been able to see first-hand the kind of logistics network required to make online retail work well.

Honor Westnedge, senior retail analyst at research firm Verdict, told Essential Retail that the partnership will have been a cost-effective way of boosting knowledge in the eCommerce space. She said that it will also have allowed the fashion business to test demand for its products on a global scale, due to Asos's "extensive delivery destinations"

"Primark will have learnt from its dalliance in the online market through its tie-up with Asos and will have a greater understanding of consumer demand, logistical implications and the level of returns which should ultimately help if it does plan to launch online with its own site in the future," Westnedge remarked.

ABF's retail brand arguably remains the highest profile retailer in the UK not to have a website offering customers the chance to purchase goods via the internet.

In recent years there have been a number of industry experts to offer their views on why a transactional website would help the business, but there are no imminent plans for the company to follow this route.

"Many shoppers can be dissuaded from entering Primark stores due to their hectic shopping environments and untidy stores, making online a solution worthy of investigation," Westnedge added.

Primark's insistence that it will not launch its own eCommerce operation echoes the route previously taken by leading grocer Morrisons, which only entered the online retailing world earlier this year through a unique partnership with internet-only supermarket Ocado.

For now, though, Primark appears to be making encouraging progress by simply following the bricks and mortar route and by revamping some of its burgeoning store portfolio.

In the second half of its financial year, Primark's sales growth reportedly improved significantly in the summer months after a spring that was negatively impacted by unseasonably cold weather. Trading in its northern continental Europe stores was said to be strong throughout the year, while like-for-like trading in the economically-challenged Spain also improved.

During the current financial year Primark will have opened 16 new stores, including one in West Bromwich which is scheduled to open on Thursday 12 September. It has extended its Manchester, Newcastle, Chester and Dublin stores, but closed one store in Lincolnshire to bring its total portfolio to 257.

This week's pre-close statement indicated that the company expects to add more than a million sq ft of selling space globally in the new financial year, with "an extensive programme of openings" planned in the coming months in time for Christmas 2013, including its first French store, in Marseilles, which is due to be unveiled in December. 

Verdictretail.com

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