- In light of the coronavirus pandemic, experts have questioned the long-term viability of any retailer without an e-commerce platform.
- Fast-fashion giant Primark, known for its rock-bottom prices, is one such retailer.
- In a note to clients yesterday, a group of UBS analysts said it makes no sense for Primark to move online, and that the retailer is uniquely positioned to thrive without an online platform.
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Brick-and-mortar retail is perhaps facing bigger challenges than ever before. During the coronavirus pandemic, consumers have shifted to shopping online, and have learned to live without stores. Major retailers such as Zara and H&M are closing branches to focus more on e-commerce, and experts have questioned whether any retailer can survive without an e-commerce platform.
UK fast-fashion giant Primark, known for selling clothing and homeware at low prices, has no online store, and its sales have dried up during the pandemic. But the chain need not worry about its future, a group of UBS analysts has said.
In a note to clients on Wednesday, titled “no online, no problem,” they said the retailer can thrive without going online because of its unique business model – it makes meager margins and relies on customers buying in bulk, which doesn’t lend itself to online shopping.
To prove their point, they compared Primark’s margins and its average basket value to its main competitors, including Zara, H&M, Boohoo, and Asos.
“Assuming each retailer sells a Primark basket at a Primark gross margin, no retailer makes positive EBITA [Earnings before interest, taxes, depreciation, and amortization].
“What Primark offers consumers does not seem to be something that can be easily replicated online. As long as there is demand for £2 ($US2.50) T-shirts, people will have to go to stores,” the UBS analysts wrote.
Primark could raise prices to make money online, but this “would remove Primark’s major competitive advantage and USP [unique selling point] and bring it into the danger zone of middle-market fashion where there is little to differentiate the offer from peers,” the analysts wrote.
Primark company executives have made the same point in the past. “The cost to support home delivery can’t be supported with our price points,” John Bason, finance director of Primark parent company Associated British Foods, told The Wall Street Journal in 2017. Low prices are well worth it, he added. “Volumes don’t go up by a bit, they go up by a lot.”
The collapse of other brick-and-mortar rivals gives Primark a chance to gain more market share, the analysts said. They estimate the retailer could capture around £6 billion, or $US7.5 billion, in extra sales.
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