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Lockdown, Lack of E-Commerce Send Primark Losses Spiraling

Primark parent Associated British Foods plc on Thursday provided a loss estimate for the 16-week period including November and December, but said losses through the end of the fiscal half year will escalate as lockdowns shutter stores.

ABF gauges the financial fallout at 540 million pounds ($736.1 million). With temporary stores closures expected to continue through Easter, at least in the U.K., the losses through the remainder of the financial half ending Feb. 27, could reach at least 1.05 billion ($1.43 billion) for Primark, which doesn’t operate e-commerce, ABF said.

A loss estimate of 650 million pounds ($886.1 million) on Dec. 31, 2020, for the period through Feb. 27 was far higher than a previous forecast last month of a loss of 430 million pounds ($586.2 million), and it has only grown higher as the U.K. extends lockdowns. Quarantines that began last month were originally expected to last two weeks, but the emergence of a new, more contagious strain amended those plans. Most of the U.K. has now entered the toughest Tier 4 restrictions.

ABF said it expects to partially mitigate the loss through measures that can save about 25 percent of operating costs for temporarily closed stores. That would mean adjusted operating profits for Primark for the first half estimated at “break-even,” compared with operating profits of 441 million pounds ($601.2 million) for the same period year-ago period.

ABF said on Thursday that 305 of Primark’s stores are closed, including many across Europe. Primark has 389 stores in operation globally, and the temporarily shuttered doors represent 76 percent of its retail store count. It operates 190 doors across the U.K.

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Revenue for the retail group for the 16-week period ended Jan. 2 fell 30 percent to 2.03 billion pounds ($2.77 billion) from 2.90 billion pounds ($3.95 billion) at a constant currency basis. The pandemic has impacted store operations either by temporary closures or reduced hours.

“Performance has varied by store, reflecting the prevailing circumstances of our customers at the time including home working, less commuting and much less tourism. Sales at our stores in retail parks were higher than a year ago, shopping centre and regional high street stores were lower than last year and large destination city centre stores, which are heavily reliant on tourism and commuters, continued to see a significant decline in footfall,” ABF said.

Footfall has dramatically declined across the U.K., falling 64.8 percent year over year during the week of Jan. 6 and 49.1 percent from the prior week, according to Springboard, which tracks visits across the nation. “During the first full working week of 2021 the reduction in footfall across UK retail destinations from the week before was nearly as great as that during early November when England entered Lockdown 2,” Springboard marketing and insights director Diane Wehrle said Tuesday. “This means that the decline in footfall from last year is now around the same level as before non essential retail stores reopened following the first Lockdown in June 2020.”

Meanwhile, ABF said that in a number of stores, it was able to operate with extended hours leading up to Christmas to manage “high customer demand and spread shopping hours over a longer period of time.” Among popular categories were all Christmas and gifting lines, which ABF said had sold out, and “stay at home” product categories such as nightwear and loungewear.

ABF said markdowns were substantially lower than the same year-ago period, and that it will hold some inventory totaling 200 million pounds ($272.6 million) for this year’s autumn-winter season. “All orders placed with our suppliers will be honoured,” ABF said.

ABF also warned that if the entire Primark operation were to close due to lockdown measures until the end of March, it would lose around 800 million pounds ($1.09 billion), reducing profits by an estimated 300 million pounds ($409.0 million).

Despite the continued ongoing pandemic, ABF said the Primark operation opened five new stores during the 16-week period, including at New Jersey’s American Dream shopping mall. “The very positive customer reaction to these store openings, both in the US and in Europe, was striking given the circumstances,” ABF said. The pandemic has delayed some store openings and the company expects to open 15 new stores in across Europe and the U.S. Based on the “successful resizing of several U.S. stores,” ABF said it also will downsize its Boston Downtown Crossing store to improve profitability and customer experience.