Why Primark's plan to trial new click and collect service could be smart
Budget retail chain Primark will launch a UK click and collect trial on children’s products towards the end of the calendar year in what looks a useful halfway house into online retail at a tough time when the channel is weakening as cash-strapped consumers change their behaviour.
Owned by foods-to-fashion conglomerate Associated British Foods (ABF), Primark has long eschewed online transactional services. The discount clothing and homewares seller’s rationale has always been that the economics of online deliveries and returns wouldn’t stack up for its cheap and cheerful product range.
This argument carries extra weight currently given the inflationary pressures, uncertain buying patterns and soaring return rates eating into the margins of online-only fast-fashion rivals ASOS (ASC) and Boohoo (BOO:AIM) at present.
Given these headwinds, Primark’s capital light trial seems sensible at a time when physical stores are proving more resilient than many expected and, to quote Shore Capital, Primark’s pure offline offer is ‘not presently as strategically out of favour as some previously believed and presently may suggest’.
Associated British Foods’ CEO George Weston told analysts click and collect represents a ‘significant business opportunity’ for Primark.
The trial, which will take place in up to 25 stores in the North West, will allow cash-strapped shoppers to order children’s goods online at their convenience, but they will still need to pop into a Primark to collect their purchase.
Associated British Foods’ management hopes the initiative will boost footfall and incremental in-store sales.
As for ASOS and Boohoo, shares in both names slumped on 16 June after the former delivered yet another profit warning and the latter reported a weak start to its 2023 financial year with news of its first-ever sales decline in the UK market.
Both online clothing retailers are feeling the squeeze from soaring costs at a time when cash-strapped shoppers are cutting spending on non-essential clothing and more young fashionistas, hit hard by the cost of living crisis, are returning products. They also face aggressive competition from the likes of Chinese ultra-fast fashion retailer Shein.
ASOS has at least finally ended its long search for a new CEO, having appointed José Antonio Ramos Calamonte to the hot seat. Investors will be hoping for some fresh thinking in the boardroom with the share price sitting at a 12-year low. Calamonte joined the company from Portuguese fashion group Salsa Jeans.
He will need to execute against a strategy focused on own-brand sales, fulfilment on behalf of partners and overseas growth whilst fending off cheap competition and grappling with rampant cost inflation.