That figures was achieved by the UK-headquartered fast fashion retailer, despite an overall decline in like-for-like sales.
Primark sales were driven by a 9 per cent increase in selling space, with a net 22 new stores (315 stores at year end) and a net 1.2 million sqft added. Despite a rise in operating profit, operating margin declined by 1.0percentage point to 11.6 per cent due to the weak euro against the dollar, though its impact has been lessened by tighter stock control and reduced markdown levels.
Given the pound’s weakness against the dollar, Primark has stated its commitment to remaining the price leader in the value sector, vital if it is to remain top of mind as shoppers’ disposable incomes become tighter. It has however neglected to comment on whether it plans to raise prices next year, though if it does it should be focused on product at the top end of its pricing architecture, where increased design and quality can disguise such hikes.
While Spain, France, Austria and Ireland performed well, Primark was denied overall like-for-like growth due to unseasonal weather in both winter and spring, which especially affected UK performance. Volatile trading caused by the weather is nothing new, but given Primark doesn’t have the benefit of eCommerce to flexibly shift the focus onto more weather appropriate ranges, it must change its strategy to fully showcase transitional ranges instore – with visual merchandising key to enticing shoppers to buy.
Primark’s clothing proposition remains compelling, and expansion of its beauty and homewares ranges will further boost destination appeal; but Primark must encourage cross-sector spend to drive maximum gains. While investment in back-of-house areas in stores has helped to drive efficiency gains, a focus on customer service is much needed, along with minimising shopper pain points such as fitting room and till point queues, if it is to further improve the instore shopping experience.
The new 2016/17 year will bring further expansion with 1.3 million sqft planned, and new stores due to open in the US, Italy and Germany. US customer reaction has been positive and Primark is taking the time to fine-tune its proposition – however a more aggressive expansion strategy is needed to drive the volume required for success as it remains offline.
- Kate Ormrod is a senior analyst with Verdict Retail.