Lovers of cheap fashion rejoice! Primark has finally bitten the bullet and ventured into the world of online shopping.
Ok, it’s not quite a full online offer – but its announcement that it will start offering click-and-collect on kids products from 25 stores in the northwest later this year is still a dramatic about-turn for the value fashion giant who just last year was resolute in its decision to shun ecommerce.
The retailer was convinced that it wasn’t possible to make money when selling its low-cost wares online.
Last January John Bason, finance chief at Primark owner Associated British Foods, told Retail Week: “If you go online, or even click and collect, you’re going to be adding costs,” he said.
“A third party needs to pick and pack individual items, and as soon as it comes out the carton it costs money. If it’s a pair of £1 flip-flops, by the time you’ve picked it your profit is gone. If it’s a £3 item, by the time you’ve picked it and packed it, your profit is gone.”
How will it make online work?
Bason makes a valid point. Profitability is a challenge online, particularly given customer expectations of low-cost delivery and free returns. This is bound to be even more of a challenge with its low price points.
But what Bason fails to acknowledge is that Primark doesn’t have to play by the tried-and-tested rules of ecommerce. Such would be the demand for Primark online that it could set its own rules and protect its profitability.
If it wants to charge £5, even £10 for delivery, it could. If it wanted to introduce a minimum spend of £50, it could. If it wanted to charge for returns, it could. Shoppers would still lap it up.
As it turns out, Primark has been very thoughtful about how it ventures into online. By pushing a click-and-collect-only offer, it is helping drive more footfall into the stores it has invested millions into rolling out.
The expectation is that click-and-collect will drive incremental sales in stores when orders are collected but the retailer is using the trial to understand how much incremental spend is made, and in what categories. Click-and-collect also takes away the question of what to do with returns, which retailers such as Zara have started charging customers for.
Primark will offer free returns to store and can monitor what levels of products are taken back.
Click-and-collect is also a simpler and more cost-effective way to do online, though admittedly there are challenges around not letting the operations impact store standards.
The rationale to start click-and-collect in kidswear is also a smart move. It’s a category that Primark has strength in but an area in which space limits the size of its offer in store. Online gives it an opportunity to offer a much wider range, including toys and even furniture.
This is particularly compelling for shoppers like myself who live near a smaller provincial Primark store and rarely make the trek to a big flagship Primark.
The click-and-collect offer effectively gives that provincial store the inventory of Primark’s biggest flagship, and more.
In fact, Primark says it will give kidswear shoppers up to 2,000 options via click-and-collect, which is up to four times the amount of choice in its smaller stores.
More than that, 40% of the product Primark will offer will be exclusive to click-and-collect shoppers. This means Primark can effectively use click-and-collect as a testbed to gauge the popularity of product.
If it takes off via click-and-collect, Primark could increase order numbers with suppliers ahead of launching items in stores.
A significant opportunity online
Make no mistake, this is a big move from Primark not some never-to-be-mentioned again trial that is quietly ditched.
Boss Paul Marchant says the click-and-collect launch is the culmination of two years’ work, while Shore Capital analyst Clive Black points out that Primark has made a significant investment to enable the trial.
This includes bringing in a new Oracle platform and upgrading its EPOS system as well as hiring key personnel from the likes of Asos, Farfetch and Expedia.
Associated British Foods boss George Weston told analysts that click-and-collect represents “a significant opportunity for the business”.
The big question is why didn’t the retailer venture into online sooner? Just think of the sales it could have retained during the pandemic. In the first half of its 2021 year alone, the value retailer estimated it lost a whopping £1.1 billion in sales during lockdown.
One can only imagine that the C-word played a role in convincing the retailer to take the plunge into online. With further lockdowns possible, an stores-only business is risky in this increasingly volatile environment.
It may be late to the party but Primark has clearly been considered in its approach. All should be watching to see what lessons are learnt. It could well create a new – and more profitable – model for online shopping.
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