Primark Vs Boohoo Becomes Case Study About Need for Online
(Bloomberg) -- Discount fashion chain Primark is becoming a case study in how bad it can get for retailers that have no e-commerce business to fall back on during the pandemic.
Primark, which only runs brick and mortar stores, said Thursday that the latest lockdowns in Europe may cost it more than 1 billion pounds ($1.4 billion) in lost sales. That contrasts with online-only rival Boohoo Group Plc, which raised its revenue forecast for a second time, predicting growth of as much as 38%.
Results from Tesco Plc, Britain’s largest grocer, also emphasized the need for e-commerce as consumers wary of the risks of catching Covid-19 increasingly avoid stores. The company reported record Christmas sales and a surge in online ordering Thursday that added 1 billion pounds to revenue.
Tesco Chief Executive Officer Ken Murphy said online demand is “unprecedented” and over Christmas the supermarket delivered 7 million orders containing about 400 million individual items. Tesco added 100,000 click and collect points in its stores over the holidays to make it easier for customers who want to order online but collect in stores.
Operating shops has become more expensive. Tesco said the costs of keeping its physical stores running safely will hit 810 million pounds this year.
As lockdowns in Europe have led to closures of non-essential shops, companies such as Primark have born the brunt of the pain. Shares of parent company Associated British Foods Plc fell as much as 2.1% Thursday and have dropped 13% in the past year.
Primark hasn’t budged on its opposition to e-commerce. The retailer’s focus tends to be on basics such as t-shirts for as little as 3 pounds, and it’s hard to make small orders like those profitable online.
Another difficulty Primark would have is that it relies much more than rivals on garments bought in Asia, which the chain buys in bulk to get lower prices and which it orders six months or more in advance. Online retailers like Boohoo offer smaller quantities of garments that are produced more locally, so they can adjust to quick swings in demand. Most of Boohoo’s clothes are made in Leicester, England.
“The reason we don’t have home deliveries is because we would not make any money at it and nobody else does either,” AB Foods Finance Director John Bason said in a phone interview. “When our stores reopen, people will come flooding back.”
Some Primark stores were open for 24-hour trading in December, and even attracted shoppers at hours such as 2 a.m., Bason said.
The chain plans more store openings after new shops were well received in Miami and Rome during the pandemic. In late August, about 1,000 shoppers lined up for the inauguration of its seventh Primark location in Paris.
“Are we losing sales here during these stores closures? Yes that is not in dispute here,” Bason said. “But that doesn’t mean it pushes you to make uneconomic decisions about changing a winning business model.”
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