The owner of retail giant Primark estimates the loss of revenue from store closures caused by the Covid-19 pandemic will cost the company £ 1.05 billion ($ 1.43 billion) as it continues to expand into the U.S. market. Primark has 11 stores in the US, mostly on the East Coast.
Associated British Food,
Primark, which owns Primark, rose 1% in London retail as results for grocery, sugar, agriculture and ingredients businesses beat expectations.
The backstory. Associated British Foods is a multinational food processing and retail company that owns the major European fashion retailer Primark. Due to the brunt of the Covid-19 pandemic, the retailer had to close all 376 stores in 12 countries and gradually reopen them in the spring and summer.
However, Primark came out of the first wave of the pandemic with a higher share of the UK market than it did before the coronavirus lockdown. As a large retailer, not allowing shoppers to buy online – where many other retailers have succeeded as millions of people remained house-bound by the pandemic – remains a standout feature.
Primark’s low-priced, wafer-thin-margin business model has kept the company from shifting online as it drives prices up and makes it difficult for the brand to differentiate itself from its retail competitors.
In November, Associated British Foods reported an annual profit through September 12, showing that the group’s operating profit was down 37% year over year to £ 810 million.
What’s new In a trade update for the 16 weeks ending Jan. 2, the group announced Thursday that its retail division had been severely impacted by the reintroduction of national lockdown measures in November and December to prevent the coronavirus from spreading across Europe.
Sales at Primark locations in the US, with the exception of the Boston store, continued to be strong, according to the company, delivering sales in line with last year. Boston is one of 16 major target businesses in the city that has been severely impacted by the reduction in travel and commuting frequency from the Covid-19 pandemic. The group plans to open 15 new stores this year, three of which will be in the US.
Of Primark’s 389 stores worldwide, 305 will remain closed, including all 190 in the UK. Primark sales decreased 30% on a currency-neutral basis to £ 2.03 billion for the period.
Associated British Foods expects to see a loss of around £ 1.05 billion in sales by the end of February due to ongoing store closures if they reopen after the end of February. This is an upgrade from December 31, when the group estimated losses of £ 650m for the half year.
If the closings last until the end of March, the group expects a further loss of sales of GBP 0.8 billion.
looking ahead. Primark’s inexpensive clothing and low profit margins form the basis for using it against online purchases, even when competitors have put money into their ecommerce platforms. With nearly $ 1.5 billion in lost sales, investors may get restless – but it’s too late to turn back.
The magnitude of retail losses due to widespread store closures and the lack of online shopping mean that Primark’s net worth is very different from other UK retailers. Only online
on Thursday increased its forecast for revenue growth.