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Weak Pound Will Impact Primark’s UK Margins Next Year; US Expansion Continues

Primark bucked the downbeat trend experienced by most apparel retailers last year, as sales rose despite unpredictable weather patterns and cautious consumer sentiment in some markets.

Associated British Foods (ABF), owner of the Irish fashion and homewares chain, said sales at Primark increased 11 percent to 5.9 billion pounds ($7.3 billion) in fiscal 2016, driven by store openings in the second half of the year that offset a 2 percent decline in like-for-like sales.

“Warm weather in the pre-Christmas period was followed by a very cold March and April,” ABF explained in a statement, noting, “The U.K. like-for-like performance was in line with this but Ireland delivered a strong sales performance throughout the year, Spain, France and Austria traded well and the Netherlands and Germany were less affected by cannibalization as the year progressed.”

In the U.S., where Primark now has five stores, brand awareness is growing as consumers respond to the chain’s product range and low prices. ABF said it’s particularly encouraged by the recent openings in regional malls in Danbury, Connecticut, Willow Grove, Pennsylvania and New Jersey’s Freehold Raceway.

“We now have a better understanding of what appeals to our American customers and are gaining valuable insights into store location,” revealed George Weston, ABF chief executive.

To that end, the company plans to open three more Primark locations in the U.S. in the coming year: two in Massachusetts (in Burlington and Braintree) and one in New York’s Staten Island. A 20 percent expansion of its Boston store is also in the pipeline.

In the 10 years since Primark expanded its base beyond the U.K. and Ireland for the first time, the retailer has achieved a five-fold increase in selling space, with more than 315 stores in 11 markets worldwide. In addition to the U.S. openings, Primark plans to open five stores in Germany, two more in Italy and an 89,000-square-foot location in Amsterdam’s city center.

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“That new store openings are still greeted with enthusiasm by our customers says much for the capability of our buyers and merchandisers who ensure that Primark remains at the forefront of fashion, but is also the result of our store designers making Primark an attractive and fun place to shop,” Weston added.

However, ABF cautioned that the weakening of the British pound sterling against the U.S. dollar in the wake of the Brexit vote will hurt Primark’s margins in the coming year, as the retailer sources most of its apparel in U.S. dollars and sells it in euros and sterling. Still, Weston said that Primark is “committed to leading the value sector of the market with its on-trend product offering and maintenance of its price leadership position in clothing.”