Primark survives UK retail wipe-out

As the coronavirus pandemic pummels the economy one of the worst hit sectors is retail. With all but essential shops closed and people staying indoors, high streets have spent months looking like ghost towns.

When shops finally re-opened on June 15, customers did come back and footfall has been rising. However, data from Springboard, a retail software company, suggests that footfall last week was still 53.1% of its level this time last year.

Economic life support provided by the government in the form of furlough and emergency loans helped, but for many this was still not enough. In the past six months 2,123 stores, operated by 38 large- and medium-sized retailers and employing 49,200 staff, went into administration, according to the Centre for Retail Research. This is roughly equal to the number of stores that went into administration across the entirety of 2019.

Now, as the government prepares slowly to cut back on the support it is offering businesses, the bad news looks set to keep coming for the retail sector.

Currently, the key issue is the gradual rolling back of the government’s furlough scheme. Starting next month employers will have to start paying National Insurance and pension contributions for furloughed employees. In September, companies will be expected to contribute 10% of the total to their employees furlough pay, rising to 20% in October.

However, many companies, already under financial strain, are balking at taking on these spending commitments. This, plus a mandatory 45-day grace period, means a number of companies have started to announce mass layoffs in order to avoid taking on furlough costs in the coming months.

Harrods has already announced plans to lay off 700 workers. Arcadia – the owner of Topshop, Topman, and Dorothy Perkins – is cutting 500 jobs.

In many cases mass dismissals are also being accompanied by store closures in a bid to slash fixed rental costs. The shirt maker TM Lewin is slashing 600 jobs and closing all 66 of its UK stores. Debenhams has closed 20 stores cutting almost 4,000 jobs after filing for administration in April. John Lewis has also said that an unspecified number of stores and jobs will go.

This trend seems likely to continue. Nick Bubb, leading analyst of Bubb Retail Consultancy, observed that the case of John Lewis shows that even high street retailers who managed to shift successfully online were still “left with all the costs of the bricks and mortar stores”. Inevitably, such costs “can only be reduced by cutting space/closing stores”, he said.

One of the few major retailers to buck this trend is Primark. Despite having no online store or click-and-collect service, the sprawling retailer is still expecting to turn a profit of £300-350 million this year. This is admittedly about one third of its usual profit, but is still an impressively healthy margin given the months of enforced zero sales during lockdown.

With all but eight of its stores reopened, Primark’s parent company, Associated British Foods, has stated that trading has been “reassuring and encouraging”. Primark is even planning to open 5 more stores worldwide. It is also placing £1 billion in orders for its autumn and winter seasons. Bubb expects that it will develop an online offering soon.

Still, this is a rare ray of light in a sector which, even before the pandemic, was struggling to compete with online retail. With outlets like Amazon gaining ground at an accelerated pace during lockdown the future looks grim for many high street chains. Few have the ubiquity and rock bottom prices that is allowing Primark to hold its own in the face of a global lockdown and digital giants.