Primark may be late to the online party, but it could spark some sparkle
Cheap fashion lovers, rejoice! Primark has finally bit the bullet and ventured into the world of online shopping.
Ok, that’s not quite a full online offering – but his announcement that he’ll start offering click-and-collect on children’s products from 25 North West stores later this year still stands A dramatic turnaround for the fashion giant that just last year has been resolved in its decision to steer clear of e-commerce.
The retailer was convinced that it was not possible to make money by selling its products at low prices online.
Last January, John Bason, chief financial officer of Primark owner Associated British Foods, says Retail Week: “If you go online, or even click and retrieve, you’re going to add costs,” he said.
“A third party has to pick and pack individual items, and as soon as they come out of the box, it costs money. If it’s a £1 pair of flip flops, by the time you pick it up, your profit is gone. If it’s a £3 item, by the time you’ve picked it up and packed it, your profit is gone.
How will it work online?
Baso makes a valid point. Profitability is a challenge online, especially given customer expectations for low-cost delivery and free returns. It will be even more difficult with its low prices.
But what Bason fails to recognize is that Primark doesn’t have to play by tried and true e-commerce rules. Primark’s online demand would be such that it could set its own rules and protect its profitability.
If he wants to charge £5 or even £10 for delivery, he could. If he wanted to introduce a minimum spend of £50, he could. If he wanted to charge for returns, he could. Buyers would still lap it up.
It turns out that Primark has been very thoughtful about how it ventures online. By offering a click-and-collect-only offer, he is helping to drive traffic to the stores in which he has invested millions.
Click-and-collect is expected to drive incremental store sales when orders are collected, but the retailer uses the trial to understand how much additional spend is being made and in which categories. Click-and-collect also eliminates the question of what to do with returns, which retailers such as Zara have started charging customers.
Primark will offer free in-store returns and may monitor product levels taken back.
Click-and-collect is also an easier and more cost-effective way to do this online, although admittedly there are challenges in not letting operations impact store standards.
The reason for starting click-and-collect in children’s clothing is also a smart move. It’s a category in which Primark is strong but one where space limits the size of its in-store offering. Online gives him the opportunity to offer a much wider range, including toys and even furniture.
This is especially compelling for shoppers like me who live close to a small provincial Primark store and rarely make the trip to a large Primark flagship.
The click-and-collect offer effectively gives this provincial store inventory of Primark’s biggest flagship, and more.
In fact, Primark says it will offer children’s clothing shoppers up to 2,000 options via click-and-collect, which is up to four times the choice in its smaller stores.
More than that, 40% of the product that Primark will offer will be exclusive to click-and-collect shoppers. This means that Primark can effectively use click-and-collect as a test bed to gauge product popularity.
If it takes off via click-and-collect, Primark could increase the number of orders from suppliers before launching items in stores.
A meaningful online opportunity
Make no mistake, this is a big step from Primark and not a lawsuit that will never be talked about again and is being quietly dropped.
Boss Paul Marchant says the launch of click-and-collect is the culmination of two years of work, while Shore Capital analyst Clive Black points out that Primark has made a significant investment to enable the trial.
This includes introducing a new Oracle platform and upgrading its EPOS system as well as hiring key staff like Asos, Farfetch and Expedia.
Associated British Foods boss George Weston told analysts that click-and-collect represented “a significant opportunity for the business”.
The big question is why didn’t the retailer venture into e-commerce sooner? Just think of the sales it might have maintained during the pandemic. In the first half of its 2021 year alone, the value retailer estimated it had lost £1.1billion in sales during the lockdown.
One can only imagine that the C-word played a role in convincing the retailer to take the plunge online. With further lockdowns possible, a stores-only business is risky in this increasingly volatile environment.
It may be late to the party but Primark have clearly been thoughtful in their approach. All should watch to see what lessons are learned. It could well create a new – and more profitable – model for shopping online.
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