Primark expects to lose more than £1bn in sales during the first half of its financial year because of new restrictions brought in to slow the spread of the coronavirus pandemic, forcing the closure of stores.
Shop closures and stay-at-home orders in its main UK and European markets caused a 30% fall in sales at the fast fashion retailer, to £2bn during the the 16 weeks to 2 January 2021, its owner, Associated British Foods (ABF), said. Sales for the Christmas period in 2019 hit £2.9bn.
The retailer lost sales worth £540m during November and December, prompting it to revise up its forecast losses of £650m, made just a fortnight ago, to more than £1bnin the first half up to the end of February.
Primark has been hit particularly hard by the pandemic because its strategy focuses on bricks-and-mortar shops, with no online shopping offering. Before the pandemic the strategy helped Primark become the UK’s largest clothing retailer, focusing on low prices rather than expensive investments in online shopping.
Three-quarters of Primark’s retail space is now closed, including all of its 190 UK shops, plus another 115 across European markets such as Germany, Ireland and Spain.
The pandemic meant that sales during the traditionally lucrative Christmas period have dropped for two years in a row. A year ago, before the extent of the coronavirus outbreak became clear, the retailer said it switched its focus to growing overseas rather than in the highly competitive UK market.
ABF said that a 14% like-for-like decline in Primark sales while stores remained open was “strong”, given a “significant decline” in commuting and tourism footfall in city centre shops. Sales at out-of-town retail park locations were higher than the year before, but shopping centres and regional high streets suffered.
Primark will put unsold clothes for autumn and winter worth £200m in warehouses to try to sell later this year, but still expects to roughly break even because of cost cuts. However, ABF said it will honour all orders with suppliers, after fast fashion retailers were criticised for order cancellations that would effectively make workers in poorer countries bear much of the cost of reduced sales.
Primark’s difficulties were balanced by a stronger performance in ABF’s food and agricultural divisions, all of which grew faster than expected.
Group revenue fell 13% compared with the same period last year to £4.8bn. ABF’s agriculture division, which makes animal feed, enjoyed the fastest growth, with sales up by 10% year-on-year.