Thursday 18 January 2018

Penneys wise to give web a wide berth and shun online shopping

Sarah Shannon

YOU can't see them on Instagram, read their tweets on Twitter or pin them on Pinterest. We're not talking about your grandparents, but about Penneys.

Bigger rivals like Inditex, Hennes & Mauritz and Gap lure shoppers via Facebook, YouTube and bulletin board Pinterest and add country- specific websites to target new markets.

Penneys owner Primark, by contrast, has ruled out selling its budget clothing online, saying stores offer so much growth that it doesn't need the web.

Primark, founded in Dublin's Mary Street in 1969 and driven by former chairman Arthur Ryan (below), has prospered by selling some of the cheapest clothes around thanks to a tight rein on costs.

The 257-store chain saw its sales jump 15pc to £3.5bn (€4bn) last year. Late last month, Primark said sales over the last six months grew by around 23pc. By keeping overheads low, Primark can offer coloured denim jeans for €10, less than a fifth of what they might cost at Inditex's Zara. It also keeps margins thin: Primark's operating profit is 10.2pc of sales, less than at Inditex and H&M.

Setting up a separate web store would be expensive, and fulfilling orders for low-value items wouldn't be profitable, according to Matt Piner of market researcher Conlumino. So not going online "completely makes sense", he said.

"The challenge for them is to keep the buzz around the brand and keep that appeal for younger shoppers," Piner said. "If they can keep doing that, not being online won't be an issue."

Primark's web weakness isn't hurting profit, which Societe Generale estimates will increase 35pc to £480m (€556m) this year. That compares to 26pc growth for Inditex and a 9.5pc lift for H&M.

"It's the design and the price I like," said Rie Smielt, a 20-year-old Danish student, clasping a Primark bag laden with £50 (€58) worth of clothing including jeans, two blazers and a beach dress. "You need to come to the store to see if it fits and see the quality. I don't think I would shop online."

Shares of Associated British Foods, Primark's owner, have surged 16pc this year, besting H&M's 4.3pc gain and a decline of 1.7pc at Inditex. A standalone Primark would have an even higher valuation, said Investec analyst Martin Deboo, since AB Foods is weighed down by less profitable businesses.

While billionaire Philip Green's Topshop and H&M court young shoppers with Instagram photos of models backstage at London Fashion Week and tweets about celebrities wearing their clothes, Primark is silent. It has a fan page on Twitter, but not its own, and more than 460,000 likes on a Facebook page the company introduced last year. That might seem okay until you consider that Zara's Facebook page has 16 million fans.

Primark's website, meanwhile, has more details about what it calls its ethical trading standards than its fashions.

Primark would be wise to better engage shoppers via social media, said Kate Ormrod, an analyst at Verdict Research in London. She suggests the company should offer styling tips or hints on how shoppers can dress more like their favourite celebrities.

"It would get people wanting to go to the stores," Ormrod said. "Primark is way behind the likes of Topshop. They've hardly investigated online."

Primark finance director John Bason said: "The growth we're getting in topline and profit in Primark, without a transactional website, really speak for themselves," he said.

Primark opened 19 stores last year as well as a 425,000 sq ft warehouse in Germany to service its growing northern European operation. Rivals such as Topshop and Next have lately relied more on the lower-cost route of using the web to enter new markets.

Arcadia, the owner of Topshop, said e-commerce sales climbed 22pc last year as it expanded the business to 112 countries. Next says revenue for its online and catalogue business increased 16pc as it extended delivery to Russia and Latin America. At Asos, an online-only UK fashion chain that adds 1,500 new items every week, sales rose 32pc last year, driven by revenue from the US, where it increased digital marketing to attract younger shoppers.

Developing an online business isn't easy or cheap, according to Mark Hudson, a partner in the retail practice at consultants PricewaterhouseCoopers. It requires a supply chain flexible enough to handle the demands of large flagship stores alongside small online orders, and smart enough to give timely, accurate information on whether an item is in stock.

Product returns are also a bigger concern on the web.

Shoppers send back about 30pc of clothing bought online, as they buy several sizes and colours to try on, versus about 10pc for brick-and-mortar stores. A surge in online returns could clog Primark's supply chain, according to Darren Shirley, an analyst at Shore Capital in Liverpool, who has a hold rating on the stock.

Even without a web presence, "I can see this business doubling over the next five years in terms of sales and profits," Shirley said. "There's more than enough growth to go for in Europe."

Irish Independent

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