Primark owner Associated British Foods has taken a step towards a an online shopping and home delivery service, albeit only a small one.
The low-cost, fast-fashion retailer has for years refused to entertain an online delivery service, it even held out through pandemic lockdowns without reinventing itself into an e-commerce
Industry experts would typically point to low-costs, tight margins, and the threat of costly delivery operations as reasoning against going online.
But, evidently, Primark is now ready to take at least a half step in that direction with plans to trial a click and collect service in 25 Primark stores, in the north west of England
Customers will be able to shop from the comfort of their homes and collect in-store, a move Primark hopes will drive higher footfall and lead to incremental sales in its shops.
Moreover, Primark promises more variety online, with up to 40% of items exclusively available via click & collect, including baby cots, which currently aren’t sold in store due to space.
The click and collect news came alongside third quarter results today which showed an 81% increase in sales for AB Foods.
It is deemed to be a natural progression in Primark’s digital development following a revamp Primark website, which is said to have grown traffic by around 60%.
If successful, it is expected that the trial could lead to a rollout of a nationwide service.
Why the excitement?
AB Foods’ decision to trial click & collect at some of its Primark stores has sparked some excitement among analysts, with Russ Mould at AJ Bell labelling it the “big takeaway” from the latest update.
Primark’s success has been built on constantly being the cheapest option, meaning it has usually thrived in times of economic hardship as consumers ‘shop down’, which according to today’s results is what’s happened so far this year.
Click & collect service allows could allow Primark to trade online whilst avoiding the costs of setting up delivery operations.
It’s a “win-win”, according to Laura Hoy, analyst at Hargreaves Lansdown.
“It appeals to customers who are keen to shop online, but it also encourages those who use the service to visit the stores, perhaps increasing the potential for impulse buys.”
“The cherry on the top is the ability to make shopping more accessible without taking on last-mile delivery charges, which tend to stack up once shoppers are accustomed to having items dropped at their doorsteps.”
Why now?
Whilst others among the so-called ‘fast fashion’ retailers, like ASOS have warned on profits, squeezed by the cost-of-living crisis and soaring inflation, Primark is pushing ahead with expansion.
It helps that business remains strong.
Today’s results revealed a 69% increase in year-to-date retail revenue for Primark, and highlighted that some 500,000 square feet of new retail selling space will be opened up during the financial year.
Neil Wilson, an analyst at Markets.com believes prevailing market conditions may help Primark capture greater market share.
“Primark would be considered a winner if people have less money to spend,” he said.
Essentially, Primark’s pricing structure and general business model works and works well when the economy is strong and yet thrives during times of struggle.
So, while the cost-of-living crisis shows no signs of slowing down, management seeks to be opportunistic, to expand and build and look to attract more consumers.
Are home deliveries the next stage?
So, will deliveries follow?
Calls for a delivery service among customers may intensify if click and collect proves to be successful, and Primark opens up the semi-online revenue stream.
Deliveries, however, may simply not make sense for the firm, at least according to analysts.
Wilson believes the “ticket prices are too low,” and that “returns would be a nightmare” - ASOS’s woes are an excellent case study into how exuberant returns can undermine ‘fast fashion’.
The analyst also cites strong store footfall as justification for sticking with favouring its physical presence over its online one.
Hargreaves’ Hoy also argues that tight rein of costs will be the main factor in shunning deliveries service.
“The group’s unlikely to add home delivery to the menu given rising fuel prices and a growing push from consumers to keep emissions at a minimum.”
A move to online deliveries doesn’t look like it’s going to happen anytime soon, but, any form of online shopping marks a significant shift away from previous outright refusals.