Primark will reportedly cut roughly 400 jobs in response to flagging sales at the fast-fashion chain.
Parent Associated British Foods (ABF) said Thursday that a sweeping shakeup would “improve the efficiency of our store retail operations” in the UK. Despite the cuts the overhaul will create new managerial roles, local media reported.
Primark doesn’t plan to charge more for spring/summer merchandise to offset inflation since the pricing is “locked and loaded,” ABF chief financial officer John Bason told the BBC.
Sales haven’t recovered to where they were before the pandemic. Primark’s retail sales rose 32 percent to 2.67 billion pounds ($3.65 billion) from 2.77 billion pounds ($3.78 billion) for the 16-week period ending Jan. 8, 2022, according to ABF. That was still 5 percent off from 2019 and total comparable sales were down 11 percent.
And while U.K. store sales outpaced last year’s, comparable sales sagged 10 percent from 2019, with omicron’s effect on footfall largely to blame. ABF said sales have improved in recent weeks. The pattern was similar in Continental Europe. Sales ahead of last year were still down 14 percent from 2019 figures. Store closures in Austria and The Netherlands drove a 30 million pound ($40.9 million) sales decline, ABF said. The U.S. bucked the trend with sales up 4 percent in the period and up 37 percent versus 2019.
ABF projects Primark’s operating profit margin at 10 percent in the first half of the fiscal year that started on Sept. 19, 2021. It cited strengthening sales and efforts to mitigate raw materials and supply chain price inflation when raising the company’s outlook, in addition to a favorite dollar exchange rate and lower costs linked to store openings and overhead.
However, ABF cited continuing “delays in dispatch at ports of origin” and expects “longer shipping times to continue for some time.” The company expects to finish deploying Oracle stock management system in Primark stores with new point-of-sale terminals by the end of the year. The store-only retailer is working on a U.K. website update in March with other markets to follow in the fall.
As of Jan. 8, Primark operated 401 stores and 17.0 million square feet of retail space and opened stores in the Italian city of Catania, and Spanish towns of Vigo and Girona. It relocated a store to a bigger space premises in Gloucester in the U.K.
Primark has expansion plans in U.S., France, Italy and Iberia this year, and has signed several store leases including one in Bucharest, its first store in Romania.
For the year ended Sept. 18, 2021, Primark’s adjusted operating profit rose 15 percent to 415 million pounds ($561.8 million) on a 5 percent decline in net sales to 5.59 billion pounds ($7.57 billion).
The retailer could get a reprieve on the footfall front after U.K. Prime Minister Boris Johnson on Thursday rolled back the nation’s work-from-home mandate, with other “Plan B” restrictions lifting next week on a marked decline in coronavirus cases.
“Following the announcement of the end of the Plan B work from home guidance, footfall in U.K. retail destinations up to 2 p.m. today was 1.9 percent higher than yesterday and 0.2 percent higher than on the same day last week,” Diane Wehrle, insights director at footfall data firm Springboard, said on Thursday. “We forecast that footfall will continue to rise, over the next few weeks as employers reopen their offices, and announce to staff that they can return.”
Foot traffic has picked up noticeably in major urban areas like Central London, Wehrle said. Footfall in regional cities outside London was 1.9 percent high than last week, and 1.2 percent higher than on Wednesday. Footfall in regional cities around the U.K. and in Central London rose on Wednesday and from the same day last week. And the uptick in foot traffic was even greater in Central London, 3.7 percent higher than last week and up 5.1 percent from Wednesday.
On Thursday next week people in the UK will no longer have to wear face masks or show a Covid passport to visit certain businesses. Self-isolation rules for people confirmed to have Covid are expected to lapse on March 24.
Springboard said in December when Plan B restrictions took effect that foot traffic would likely drop 50 percent from 2019 in Central London and 30 percent in cities outside of the capital. Wehrle had blasted Plan B as “another hammer blow to an industry that is still trying to recover from a huge loss of trade in 2020.”
At least 14 of 2020’s 48 retail and fashion bankruptcies claimed companies in the UK, including former Topshop and Topman parent Arcadia Group, Edinburgh Woollen Mill, Debenhams, L.K. Bennett, TM Lewin, Victoria’s Secret U.K., Laura Ashley Holdings and Oasis and Warehouse.
But fashion firms and retailers that survived also complained of high rents and onerous shop-tax rates, factors that make keeping stores open difficult amid slowing sales. Fraser Group‘s finance director Chris Wootton last year said five House of Fraser stores closed, and more couldn’t be ruled out unless the rent structure changed. The company has been pushing for rents to shift to sales-based agreements from traditional fixed amounts.
And following last year’s slowing sales growth due to staffing pressures, rising inflation and supply chain disruptions, the British Retail Consortium even pushed for cuts in business tax burdens to help curtail additional store closures and retail job losses. The U.K. retail sector finally got some breathing room it won a one-year, 50 percent business rate tax cut.