Blame fat fingers rather than absent footfall. Shares in Associated British Foods, owner of value clothes retailer Primark, briefly collapsed to a penny. The business, which lacks an online channel, said it had closed a fifth of its European stores and suffered reduced shopper traffic in the remaining shops.
The anticipated four week shuttering of the outlets, which generate 30 per cent of Primark’s sales, should erase £190m of revenues, ABF said. Based on last year’s margin that comes to about £20m of operating profits — a tiny drop for a group that last year generated £1.4bn, has a diversified portfolio and £800m of net cash at the end of the half year.
But shares were still down 12 per cent when trading resumed. Traffic has also fallen at the remaining stores. Plenty of other retailers have shut shops in an attempt to evade the pandemic. However, Primark looks particularly handicapped in the current epidemic because customers cannot order online instead.
Bigger names such as Urban Outfitters group and Nike are still selling via the web on the Continent. Primark lacks this option. Even ecommerce, however, is less of a blessing when end demand is stunted. Cancelled holidays, nixed dinner dates and shelving the office five-a-side (almost) negates the need for a new dress or pair of trainers.
Nor, in a more civic-minded world, is there any let up on costs. Primark, like other retailers including Nike, says it will pay furloughed staff — while allowing itself some wriggle room for an evolving situation.
Like many industries churning out Covid-19 warnings, retail earnings teetered precariously long before the virus appeared. Ghost malls in the US and increasingly deserted high streets in the UK illustrate the sector’s woes. High rents pummeled margins while environmentally-aware customers have given the cold shoulder to the climate-crushing habit of disposable fashion.
Retail is ABF’s biggest segment by far, contributing half of revenues, nearly two-thirds of operating profit and the bulk of growth. It will survive. Investors now have reason to bless rather than curse the group’s diversification, which includes making sugar from root crops in Norfolk.
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