Fashion retailer reports 1.2% increase as rival announces worse than expected news
Primark has bucked the retail gloom with “striking” annual figures showing that its “cheap chic” is drawing shoppers to the high street at a time when rivals are closing stores.
The company said sales at UK stores open for more than one year had risen 1.2% in the year to 15 September at a time when British retailers faced a slowdown in fashion sales. The annual increase came despite a difficult second half when the summer heatwave kept shoppers from the high street. Annual profits jumped 15% to £843m.
“The performance in the UK was striking, with a significant increase in our share of the total clothing market,” said George Weston, the chief executive of the Associated British Foods (ABF) parent group.
Primark’s performance was in contrast to the struggling New Look chain, which said at least 85 stores would close as part of the restructuring plan announced earlier this year.
In March, New Look predicted 60 closures as a result of its company voluntary arrangement (CVA), but more landlords have opted to take back the keys rather than agree to lower rents.
New Look’s executive chairman, Alistair McGeorge, said the future of another 39 stores was in doubt as talks with landlords continued. The veteran retailer has shored up New Look’s financial performance since returning to the helm a year ago, but the trend is still downward, with like-for-like sales 3.7% lower in the 26 weeks to 22 September.
Fashion retailers have faced a perfect storm this year as rising costs following last year’s business rates revaluation were compounded by weak consumer spending and a shift to online shopping.
Investors are braced for disappointing figures from Marks & Spencer on Wednesday, which some analysts think will show clothing sales down more than 2% as it struggles to arrest a long period of decline. M&S plans to close 100 shops by 2022.
Primark – the UK’s third largest clothing retailer, behind Next and market leader M&S – is a rare exception these days as it does not sell online. It has defied this year’s gloom and successfully exported its bricks-and-mortar business model overseas to major new markets including the US and Spain.
Weston said the retailer used the internet to create a buzz around new ranges among almost 13m shoppers who have subscribed to its social media feeds. “We can sell clothes in our stores more cheaply than online,” he said. “If you want the best-value clothing, you have to go down to the high street to get it.”
Primark will open more than 1m sq ft of new selling space in the coming year, with stores planned in mainland Europe as well as in the UK, including its biggest to date, a 160,000 sq ft branch in Birmingham Pavilions.
ABF, boosted by Primark’s strong results, was the biggest riser on the FTSE 100 on Tuesday, closing up 3% at £24.60. Across the ABF group, which also encompasses large grocery, agriculture and ingredients businesses, overall profits were up 3% at £1.4bn on sales of £15.6bn. Its grocery brands include Kingsmill bread, Twinings tea and Silver Spoon sugar.
Weston warned that a no-deal Brexit could cause major disruption even if companies attempted to prepare for the worst by stockpiling ingredients, packaging and finished products. “The reality is, if we lose Dover, we’re in trouble,” said Weston. “If the Channel tunnel no longer becomes a usable freight route because the French don’t have the customs capability on their side, then the UK food supply chain will struggle.”