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Primark: The gloss is wearing off

Primark expects group sales to grow by 4 per cent in the first half of its 2015/16 financial year, and while marginally up on its first quarter growth of 3 per cent, it has slowed considerably versus last year.

Negatively impacted by mild winter weather in the weeks leading up to, and over Christmas, like-for-likes did however bounce back in the first two months of 2016. Operating margin has exceeded expectations, with reduced markdown minimising the impact of the strong US dollar.

Though the first half has been challenging, Primark’s appeal remains resilient, with its proposition evidently welcomed in new markets, and its trend-led fashion ranges and regular newness ensuring it retains its competitive edge in the UK. Further development of its homewares and health & beauty offers is a must for the second half year, enabling it to grow its destination appeal and increase basket sizes.

The retailer opened six new stores in the first six months of the year, ending the period on 299 stores and 11.5 million sqft.

Its French operations have recorded exceptional trading with strong like-for-likes, and while further rollout is expected to satiate demand, the challenge is to maintain the high sales densities it has previously achieved in the years to come.

Primark remains committed to the US, with six new stores planned for the second half, alongside its first Italian store.

Supporting Primark’s continued European expansion is investment in increasing warehouse capacity, and this summer its UK distribution centre will move to a larger facility in Northamptonshire. A new warehouse in the Netherlands will also open. Primark maintains a measured approach to expansion, and while further European market entry is unlikely in the short term given the focus on Italy; Primark must not lose sight of existing domestic operations, with investment much needed to bring its UK store network up to a consistent stands in terms of design and environment.

  • Kate Ormrod is senior analyst at Verdict Retail.

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