Why Primark doesn't need online, a financial analyst's view

New York – With 373 stores – half of them in the UK, the brand’s domestic market – Primark’s leadership have said many times that their growth, now and in the future, will continue to come from growing their physical stores network.

In light of the coronavirus pandemic and the way it has dramatically changed consumer behaviours and priorities, many experts have questioned the long-term viability of Primark’s “onlineless” strategy.

Primark’s margins are too thin to support profitable ecommerce

In the 2019 Annual Report, Associated British Food, the parent group to Primark, said their clothing business achieves its characteristic “value for money” by keeping advertising costs to a minimum, leveraging economies of scale by buying clothes in “vast quantities,” and running lean operations with efficient logistics.

Earlier in June, a group of UBS analysts said in a note to clients that it makes no sense for Primark to move online, and that the retailer is uniquely positioned to thrive without an online platform.

UBS analysts used publicly available information to estimate the operating expenses involved in an online order, including warehousing products, distribution, marketing, and costs such as payment processing and customer service. It also estimated the average basket, or total value of items in a purchase, a customer typically orders at the retailer. With that information, it concluded that Primark would lose about 2.10 pounds on an order of 33.30 pounds, reports ‘QUARTZ’.

Per the analysts’ estimate, Primark’s margin was 40 percent, which is too thin to support high costs of online orders in a viable way.

“What Primark offers consumers does not seem to be something that can be easily replicated online,” UBS’s analysts wrote. “As long as there is demand for 2 pound t-shirts, people will have to go to stores.”

Picture credit:FashionUnited