Primark Prospers in U.K.'s Bargain-Basement Holiday SeasonBy
Squeezed British consumers shift spending to discount chains
Primark thrives as Debenhams and House of Fraser suffer
Brexit-squeezed U.K. consumers who cut back on Christmas-shopping trips to department stores kept snapping up Primark’s 5-pound ($7) dresses and 2-pound T-shirts.
Associated British Foods Plc’s discount fashion chain rang up U.K. same-store sales growth close to 4 percent in the 16 weeks through Jan. 6, according to Barclays’ estimates -- even as some of its fashion rivals closed stores or pleaded for rent reductions amid a shift in spending to Amazon.com Inc. and other online retailers
“The U.K. is on fire,” AB Foods Chief Financial Officer John Bason said by phone. “Of the 20 largest retailers, our market-share growth has been the strongest over the last year.”
Primark is not the only discounter that’s thriving amid the U.K.’s general retail gloom. As shoppers grapple with higher food prices prompted by the pound’s drop in the wake of the vote to leave the European Union, they’ve turned to the likes of Steinhoff International Holdings NV’s Poundland, B&M European Value Retail SA and German grocers Lidl and Aldi for bargains.
Poundland reported a 5.6 percent increase in same-store sales, its most successful Christmas ever, while B&M’s U.K. same-store sales rose 3.9 percent. Lidl’s U.K. sales in December rose 16 percent, while Aldi’s were up 15 percent.
AB Foods’ holiday update wasn’t all positive. In contrast to the strong U.K. performance, the company’s business across continental Europe was dragged down by a warm October. The company also warned that profits would fall more than expected in its sugar business this year because of a drop in prices. ABF’s shares fell as much as 4.1 percent.
Primark’s U.K. business, however, remained resilient even as other retailers struggled. The holiday shopping season’s losers included department-store chains Debenhams Plc, which issued a profit warning, and House of Fraser, which is attempting to secure rent reductions from landlords.
The department stores and other mainstream stores are struggling amid a shift toward online shopping. Philip Green’s retail chains, including TopShop, recently requested price cuts from suppliers, citing the increased cost of doing business online, a spokesman said by email. Like-for-like sales at the U.K.’s midmarket fashion stores declined in each of the last three months of the year, according to research by BDO.
Discount retailers are more insulated because of their low prices. Primark doesn’t even sell online, though it does use social media for marketing.
“Consumers have allocated more spending to discounters so that they have more to spend on premium products,” independent analyst Richard Hyman said. “It’s the midmarket retailers who have lost out the most.”