Primark's shunning of online selling proves there's life on the high street yet

Primark, the budget fashion business that has largely shunned online selling, has reported higher revenues thanks to further store openings.

Thursday, 16th January 2020, 11:37 am
Updated Thursday, 16th January 2020, 11:42 am
The chain has a built a major presence in Scotland, including in Glasgow's Argyle Street. Picture: John Devlin

The retailer’s growth helped drive revenues up at owner Associated British Foods (ABF), which saw group revenues increase 4 per cent over the 16-week period to 4 January.

Primark saw its UK sales grow 4 per cent as it benefited from new stores and expansions, while sales across the retailer as a whole were up 3 per cent.

The chain, which uses its web presence as an online shop window, expects to open 18 stores globally during the financial year as it continues its expansion programme.

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John Bason, chief finance officer at ABF, said the retailer performed well given “softer volumes” across the retail sector.

He said: “The UK consumer has more discretionary income than before but spending has decreased so there is clearly a degree of caution in retail and there has been in other areas.

“I think Primark has made a clear statement here and I think we performed well because we went back to basics.

“There were great products which had a clear relevancy with the consumer and that is what worked for us in November and December.”

ABF said Primark saw sales in its eurozone business jump 5.1 per cent on the back of “strong progress in France and Italy”.

Old school

Sophie Lund-Yates, equity analyst at financial services firm Hargreaves Lansdown, said: “Primark is proof not every retailer struggled this Christmas, and the upturn in Europe is welcome news, particularly Germany where conditions have been tough.

“What’s most striking about Primark is it’s essentially an old school retailer. Lack of a meaningful online business makes the chain a high-street play, so the improvement to sales performance is even more impressive.

“Within the UK, repeat business did dip slightly, but new store space is offsetting that – which has been the tactic for a while now.

“It will be interesting to see how long Primark sticks to that plan, at some point it will start to bump against the sides of the tank. For now though, there’s clearly still real demand for what’s on Primark’s shelves, and the newer stores are doing what they set out to do for the business.”

Elsewhere, ABF was bolstered by its strengthening sugar business, which saw revenues increase 5 per cent after EU sugar prices remained higher than over the same period last year.

It said lower costs in sugar production also mean that there will be a material improvement in profits from the sugar arm, particularly in the second half.

ABF said grocery sales were level against the same period last year, although profit margins improved.

Increased popularity of herbal teas in the UK and US helped to improve revenues at the group’s Twinings division, while efficiencies in the tea supply chain also helped to improve profits.

ABF said operating losses at its Allied Bakeries business were reduced after “progress from cost reduction” more than offset lower sales.