Hopes for retail revival as Primark sales bounce
The cut-price fashion chain’s surging sales only provide a faint glimmer of hope to a retail industry shaken by coronavirus
SHOPPERS have flocked back to retail bellwether Primark amid growing signs of a recovery on the battered high street.
The bricks-and-mortar budget fashion chain revealed that trading was much better than expected in the three months to Sept 12 – and it now expects annual operating profits to be at the top end of estimates of between £300m and £350m.
It came as data firm Springboard said that Greater London footfall was finally showing evidence of a significant bounceback, and as the British Retail Consortium revealed that overall, shoppers spent 3.9pc more in August than a year earlier.
Separate spending data from Barclaycard showed that demand for entertainment and leisure had also risen, in part driven by Chancellor Rishi Sunak’s “eat out to help out” meal subsidy scheme.
The jump will spark hopes that the consumer engine at the heart of Britain’s economy is kicking up a gear.
But city centre footfall remains far below normal levels, swathes of the high street economy are still suffering and the progress could yet be derailed if job losses surge at the end of the taxpayer-funded furlough scheme next month. Raheel Ahmed, of Barclaycard, said: “It seems the final throes of summer have spurred households to get out and about, with clothing stores, pubs and bars welcoming growth for the first time since lockdown began.
“However, despite the high street showing some signs of recovery, challenging times still lie ahead in certain sectors. Months of lockdown have helped accelerate the trend towards digital, with surges in areas such as online ordering of takeaways and buying groceries online.”
Primark’s announcement of a sales bounce will drive hopes of a wider recovery as it has long been seen as an indicator of wider consumer spending.
The retailer, owned by parent company Associated British Foods, said it had continued to lure customers to its stores from other rivals in May, June and July, and now had its highest ever share of the clothing market.
Yet although profits will be better than first feared when Covid brought the economy to a crashing halt, they are still set to be significantly down on the £913m hit a year earlier.
John Bason, its finance chief, said the figures had proved industry experts wrong. There had been concerns the bricks-and-mortar-only chain would lose ground to rivals with websites after its near-200 UK stores were forced to close for months. Mr Bason said: “Has the brand been damaged? Well this [update] says ‘absolutely not’. If anything, we’ve come out even stronger.”
The company expects sales to hit £2bn between the lifting of lockdown and the end of September. They fell from £650m a month to zero when all its branches were forced to shut.
People have also been buying more clothes in one go, which has helped offset lower footfall. It has been selling most of its wares at full price after it feared it would have to shift some at a discount, or store them in warehouses for next year.
But some branches in city centres are still holding back sales because there are fewer commuters and tourists visiting shops.
Primark’s UK sales are down 12pc this year. If four of its largest city centre stores were to be excluded, the drop would be just 5pc.
Despite this, Mr Bason said Primark remained committed to these stores and shoppers would gradually return.
Allegations of supply chain abuses at Boohoo have taken the shine off fast fashion. Yet, a return to form at Primark is still something to cheer. If the high street was a grim place pre-pandemic, it has been utterly dire since.
Lockdown has emptied our towns and cities, with catastrophic consequences for retailers, restaurants, pubs, the arts, and many other service industries that rely on physical activity.
Without further support like the Chancellor’s subsidised “eat out to help out” voucher scheme, whole areas will be abandoned, with grave consequences for the economy.
The vigour with which one of the UK’s most formidable retail chains has bounced back provides hope that there is still life out there.
Trading beat expectations over the past quarter after Primark threw open its doors to shoppers again in June.
Basket sizes are also up and owner Associated British Foods expects the retailer’s profits to be at the upper end of revised Covid forecasts at the end of the year.
Indeed, the chain sounds positively chipper, boasting that sales over the last four weeks were the “highest ever… for this time of year”. The results are particularly impressive given that Primark has no online operation to speak of, meaning it has completely missed out on the lockdown internet bonanza.
Yet, it is important not to read too much into these figures. For a start, they only cover a short period and, as Primark itself acknowledges, the rebound will partly be driven by “some pent-up demand”, which is why it is already slowing.
The same can be said for the broader high street. Yes, high street footfall was up 2.6pc across the UK last week, according to data provider Springboard. In Greater London, the figure was double that. But hold the celebrations. In the centre of the capital, where there is a high concentration of office workers, levels are still half what they were last year. For the rest of the UK, visitor numbers are off by a quarter. Perspective is everything. Primark was floored by the crisis. When the last of its stores closed on March 22, sales went from £650m a month to zero overnight.
Yes, turnover since restrictions were lifted is set to hit the magic £2bn mark by the end of the year, and profits will be at the upper end of the City’s drastically revised predictions, but at £350m, the bottom line will still come in just under two thirds off the £913m recorded in 2019.
The UK high street has served the chain well but it is clearly beginning to look further afield more seriously now, encouraged no doubt by the diverging fortunes of its hundreds of stores. Those in retail parks are performing strongly but its high street shops remain decidedly below par.
Overseas expansion is being stepped up with another 700,000 sq ft of space earmarked for Spain, the US, Italy, France and other countries, to add to new outposts in Paris, Warsaw and Strasbourg.
But there’s a bigger point that is in danger of being missed. Primark isn’t just any ordinary retailer. It has always been an outlier and basic economics says that its cut-price fashion, which has always been popular, will be even more of a hit during a vicious downturn. Its improving fortunes provide a glimmer of hope but nothing more than that.
‘Primark isn’t just any ordinary retailer. It has always been an outlier’
Pizza Express tastes freedom
On the face of it, a deal to close 73 restaurants at Pizza Express will do little to transform its prospects. After slimming down, it will still have 400 UK sites, including thankfully my local one at South Woodford.
Food snobs wouldn’t be seen dead in Pizza Express but I speak from personal experience when I say, for parents with young kids, it is about the best of the many big chains that still clutter up the high street. Yet, it’s a sweeping financial overhaul that will make a real difference. After being passed around the private equity industry like a soggy margherita for the last 20 years, the company was in a precarious position before the crisis. Lockdown merely threatened to deliver the fatal blow.
Landlords have also agreed to reduce rents, but the final piece of the puzzle is a debt-forequity swap that effectively hands control to its creditors in return for debts being cut from £735m to £319m, and a £144m cash injection.
Free from the dead hand of private equity, a tired, but still popular, household name should be granted a much-needed new lease of life.
Taking the biscuit?
Production of Wagon Wheels and Jammie Dodgers could be halted after staff threatened to strike over pay.
Parent company Burton’s has been accused of making a “derisory” offer. But, according to the company, the GMB is demanding a 7pc pay hike. That would be quite the rise even if the economy was in rude health. Sounds like it’s the union that is taking the biscuit.
Moves like Jagger A worker arranges stock at the Rolling Stones’ global flagship store, RS No. 9 Carnaby, in Carnaby Street, London, in preparation for its opening tomorrow. Created with Bravado, the shop will sell fashion items and merchandise.