Which Retailers are proving to have Financial Resilience?

Just last week, fashion chain Primark was reported in the FT.com as having lost sales of £430m in the most recent lockdown.  It was, however, still forecasting higher overall sales and profits for its full year ending September 2021.

Associated British Foods, which owns the Primark brand, said on December 4, 2020 that only seven per cent of Primark’s 389 stores remain shut, compared with 62 per cent at the height of lockdowns in November.

But are other retailers weathering the storm?

The latest news of hugely recognised retail chain Arcadia with well-known brands Topshop and Dorothy Perkins, Debenhams and Bonmarché, says otherwise.   As the public watch them collapse into administration, was this solely caused by the significant weight of the pandemic or was there an inability to adapt to the current situation retailers are facing the true challenge?  It is anticipated many more will follow as the supposed golden quarter of the retail trading period will not save everyone.

The obvious go to answer has typically been if you are a retailer that has not opened up to the digital channel of shopping, you will struggle to retain your customers and keep your business growing.  But retail chains such as Lidl, Aldi, BM Stores are an excellent example of disputing that argument.

John Bason, Head of Finance at Primark, said they would not reconsider its position on online shopping, even though for many weeks and months of 2020 due to lockdown restrictions, Primark could not trade as they did not have an online channel for their consumers to purchase items. “There is a big cost to home deliveries. It works if the consumer wants to pay a higher price. What differentiates us is our very low price point.”

Looking ahead to 2021, what challenges could many retailers face?

What is going to be a significant challenge to retailers in 2021 is that the trend for online shopping has become the “new normal”.  A large majority of consumers will still intend to shop online for many of their everyday items from the comfort of their home, however this will increase the cost of deliveries for retailers to reach their customers.  Considerable operational challenges come with online shopping, such as forecasting return of goods reversing back into the supply chain, planning delivery routes, drivers or logistics partner’s availability, transportation accessibility, technology investment, as well as satisfying the expectation of very demanding consumers getting their goods delivered on time and on their terms.

But these are not worries for Primark.

Primark had returned to its pre-pandemic market share ahead of the autumn lockdowns. Primark’s pre-coronavirus sales were about £650m a month.  Moreover the brand said it had managed to reduce store operating costs by 25 per cent during the most recent lockdowns.

Primark is a great story of financial resilience through being able to reduce their operating costs by a quarter, making their business more operationally efficient in time for when consumers return to their stores for good.

So, it is clear to me that retailers can still survive and prosper even after the biggest economic crisis retail has had to face in our generation by having a strong brand, a good price point, and potentially a global store footprint trading in nearly 400 stores across 11 countries.  Plus a digital presence even without selling through e-commerce: Primark still has a website showcasing its products and utilises social media, with its Instagram bringing in over 5 million followers!

So perhaps being more financially resilient and operationally efficient is the smarter decision to survive whatever nature throws at us mere humans who just like to buy things occasionally!