Following today’s release of Primark figures for fiscal year 2021/22; Louise Déglise-Favre, Apparel Analyst at GlobalData, a leading data and analytics company, offers her opinion: “Primark achieved substantial constant currency sales growth of 40% in FY2021/22 thanks to a return to relative normality after the pandemic, as its stores remained open throughout the period, unlike last year which was plagued by closures. Consumer desire for affordable fashion amid the cost-of-living crisis contributed to its growth, but it was not enough to allow the retailer to break past pre-pandemic levels, with comparable sales down 10% in FY2018. /19 due to lackluster performance from continental Europe. While Primark raised its prices amid skyrocketing inflation, the operating profit margin was still lower than expected at 9.8%. It has pledged to limit further price increases for the next financial year, but this will inevitably further affect its profitability, with operating profit margin now expected to be less than 8.0% in FY2022/23. Despite this, Primark’s stance on pricing will help make Primark more desirable as consumers increasingly cut spending on non-essential fashion, and allow it to better compete with value and mass market competitors such as grocery stores, Matalan and Pepco, many of which are likely to pass on additional costs to consumers.
“In the UK, the retailer has almost recovered to pre-pandemic levels, thanks to its strong value proposition and strong product ranges fueled by well-received collaborations such as its partnership with Greggs, which will see its third iteration during the crucial festive period. By contrast, continental Europe saw much weaker trade, with like-for-like sales a worrying 16% below pre-pandemic levels, which the retailer attributes to low consumer confidence and lower footfall during the months. summer due to extreme heat. In Germany, stores have reached “unacceptable” levels of profitability, as most stores are much larger than the average Primark store. As a result, the retailer is exploring options, such as downsizing retail space, to return to profitability. The US was the only region to exceed pre-pandemic levels, with a 3% increase in comparable sales in FY2018/19, encouraging Primark to continue seizing opportunities in this market, as which plans to double its retail space in fiscal year 2022/23.
“In fiscal year 2022/23, Primark plans to launch its much-improved website which debuted in the UK in April 2022 across all of its markets. This allows consumers to browse a larger selection of your range and check the in-store availability of specific products to create a more seamless multi-channel experience. The retailer will also launch its first e-commerce venture with a click-and-collect trial in the UK before Christmas, although this will be limited to a selection of children’s products across 25 stores in the north of England and Wales. Despite these limitations, the trial version is expected to be very popular, as consumers have long been waiting for Primark to enter the online shopping space.”
Richard Lim, CEO of Retail Economics, said: “These are impressive results in the tough economic environment. The retailer is well positioned to benefit from consumers who are negotiating lower and putting lower costs at the center of their buying decisions. Many shoppers are prepared to sacrifice the perceived quality and convenience of online delivery for lower costs and it’s driving people back to stores in parts of the industry.
“However, there is a perfect storm of cost pressures facing the retailer due to spiraling input and operating costs and the impact of a weaker pound and rising interest rates. The retailer has made the bold decision to halt price increases beyond next year’s spring/summer season at the expense of profitability as they seek to protect and grow their long-term market share. Margins will inevitably take a hit, but they are likely to weather the storm better than most with a value-driven proposition and a diversified business.