Primark's Digital Strategy Boosts Sales
Ireland's Primark thrives amid high street challenges, crediting its digital investment for outperforming expectations With expanded ranges, the fashion retailer is set for success beyond 2024
Associated British Foods, the parent company of Primark, announced robust sales growth for the brand's full financial year. This achievement is largely attributed to the company's strategic investment in its online platform, which has helped offset the difficulties faced by traditional brick-and-mortar retail stores. In the 12-month period ending on September 17, Primark recorded an impressive 11% increase in sales compared to the previous year.
During the presentation of the results to analysts, CEO George Weston expressed that consumers were responding positively to the company's enhanced digital offering. Weston emphasized that Primark has been investing in the improvement of its website and digital services to catch up with its competitors. He believes that by the end of the process, their digital presence will be on par with any other company in the market.
In recent years, Primark has focused on expanding its online shopping options to revolutionize its digital presence. This included a limited introduction of click-and-collect in stores and a total overhaul of their website to provide an enhanced experience. The enhanced website has now been implemented across all 16 territories where Primark operates. Weston stated that this expansion has undoubtedly boosted sales, as was initially planned. However, he also acknowledged that the success of their digital performance goes beyond just having a refreshed website.
"The company is continuing to take a test-and-learn approach to investment in some of its digital capabilities. Weston said “we’re still to decide whether click-and-collect is a commercial opportunity for us or not”, though he states the experiment is “going well so far”."
Revised
"The company is persistently adopting a trial-and-error strategy for investing in its digital capabilities. Weston expressed that the commercial potential of click-and-collect is yet to be determined, but he mentioned that the ongoing experiment has yielded promising results."
In September, the retailer reported that click-and-collect had boosted sales in its childrenswear category. It announced its intention to extend this service to women's clothing lines throughout 2023 and beyond. The results did not mention any plans for home delivery, despite other fashion retailers scaling back their free return offerings. Considering Primark operates on narrower margins, it is uncertain if the company will pursue further experimentation with home delivery.
Weston also mentioned that the brand's high street performance remained strong even after accounting for factors like weather. He expressed that shoppers are returning to high streets both in Europe and the UK. Recently, they came across some interesting survey results regarding people's shopping intentions leading up to Christmas. The survey showed that 44% of respondents plan to shop more on high streets than online this year.
In line with this, Primark declared that they will continue to install self-checkout technology in more of their UK-based stores. Currently, 22 stores offer this option to consumers. Weston also confidently stated that he believes the company's retail presence will keep expanding across Europe and the US.
Weston credited some of Primark’s success to its social media presence, particularly in its partnerships. He highlighted the brand’s collaboration with Rita Ora, the singer and actress, as an authentic way to showcase its range: “She is also genuinely a Primark shopper. She grew up near our flagship store in Hammersmith, which was our main store in the past when she was young. She openly stated that her fashion experimentation began there."
Expanded ranges
Weston clarified that the brand's expanded range of lines is not an attempt to avoid failure in other areas. He highlighted that these additional brands are supplementary to the core lines, which are still performing strongly.
Regarding The Edit, their premium essentials range, he mentioned that they are planning to enlarge the assortment of items available, increase the number of stores that offer it, and assess the success of introducing Edit's products online.
Primark's success in sales can be attributed to its licensed clothing offerings. The company carries clothing ranges with licensed designs and intellectual properties, which have greatly appealed to consumers throughout the year. The partnership with Barbie, for example, resulted in a substantial demand for Barbie-branded apparel at Primark. The company underestimated the popularity and ended up ordering less stock than needed. As a result, the items were resold on eBay for up to five times their original price, leaving Primark somewhat regretful.
In addition to licensed clothing, Primark is also gaining recognition for its range of women's essentials. This collection has gained considerable attention among fashion shoppers. According to Weston, the brand remains highly attractive not only to existing customers but also to new customers who are drawn in by their digital platform, new store openings, and positive word of mouth, which still holds significant influence.
2024 and beyond
According to Weston, retail margins were negatively impacted by increased costs, but the brand chose not to pass those costs on to consumers, a decision he believes was the correct one. The margin for the first half of the year decreased from 9.8% to 8.2% compared to the previous year, mainly due to higher costs of purchased goods, freight rates, labor rates, and energy costs. Although some of these costs are expected to decrease or stabilize in the near future, there are expenses that will remain unchanged.
The company anticipates that the adjusted operating profit margin will exceed 10% in 2024, with the potential for further improvement based on consumer demand levels.
Regarding cost reduction, Weston specifically mentioned that labor costs would not decrease, citing a 24% increase in wages for shop workers over a two-year period. Although labor conflicts in supplier markets like Bangladesh are typically short-lived, they did impact manufacturing expenses throughout 2023. However, this was mitigated by robust supply chains in China. Nevertheless, supply chain disruptions and the resulting unpredictability prompted the company to maintain higher stock levels than desired in the previous year.
Overall, group revenue for the year reached £19.8m, representing a 16% increase compared to the previous year. However, Weston expressed optimism regarding Primark's future outlook for 2024. He projected sales growth and a modest increase in like-for-like sales, which he attributed to Primark's value proposition, the expansion of its digital program, and limited price increases in the first half of the year.
Primark has finished the first phase of its digital refresh, which involved rolling out its website. However, the company plans to further invest in aligning its online and e-commerce capabilities with consumer expectations.
