Specialist
Former director at Primark Stores Ltd (Associated British Foods plc)
Agenda
- FY23 outlook for Primark (LON: ABF) across like-for-likes, pricing and profitability
- Primark’s competitive positioning and incremental growth opportunities in key markets such as the UK, Iberia and Germany
- Upcoming UK click-and-collect trial and implications for wider roll-out
Questions
1.
How do you think Primark has emerged from the coronavirus lockdown? It’s been a little bit of time now, but from the company’s commentary, it seems as if the UK is recovering better than the European continent, both in terms of like-for-likes vs pre-pandemic levels and market share. What are your thoughts around that?
2.
You discussed the UK. Am I correct that the European continent has recovered at a slower pace? Why do you think that might be?
3.
What’s your thinking about the fact that Primark stores were closed for a long time, and the market shifted online, at least for a while? Has that impacted the company’s competitive positioning on reopening, appreciating it may differ between the UK and the continent? Is the core Primark proposition still resonating with its core consumer?
4.
What’s your outlook for Primark’s like-for-likes or market shares as we trade through the next 12 months, and what moving parts do we need to think about?
5.
Are you surprised Primark is guiding for like-for-like growth for FY23? The company says pricing will contribute to that, but will that be enough to actually generate positive like-for-like growth in FY23?
6.
You mention a reduction in volume. Do you think any category or range in particular might be more impacted? There’s homeware and clothing, but there’s likely to be some diversity across clothing in terms of performance, or do you think that will be pretty unanimous across the board?
7.
Does the mix dynamic you mentioned have a significant impact on profitability? Do you think the big margin driver currently is more the cost of goods, rather than a change in mix?
8.
Primark has historically been considered a beneficiary of trade-down. Are you suggesting the current situation is so severe in terms of discretionary expenditure that consumers will just stop buying at the value end, and the company won’t necessarily benefit from someone trading down from M&S or Next?
9.
Primark might be a market share beneficiary in a tough market. Are these market share shifts long-lasting? Or will the consumer that traded down from Next go back to Next when things pick up again?
10.
In terms of market share, there have obviously been some quite high-profile competitor closures. Will that be to Primark’s benefit in the short or longer term?
11.
Can you outline the magnitude of cost pressures facing Primark and what the company can do to mitigate those, beyond pricing?
12.
In terms of the cost of the product, I appreciate what you’re saying about fibres cost levelling off, but the currency situation has historically had a big impact on Primark, with a strong dollar vs sterling and the euro. Do you think we’ve reached peak there?
13.
What can Primark do in terms of self-help to mitigate some cost pressures?
14.
I hear a lot about Primark having very strong, long-lasting relationships with its suppliers. Would this be in jeopardy in the short term, or are we talking about more forward fashion here, where there’s more flexibility and keeping the basics and the same relationships with suppliers?
15.
I think you said you’ve seen some price increases – 10-15% on some of the more forward-fashion items. How does Primark manage this? Does it not change anything as far as basics are concerned? Does the company look to price in with new ranges as they come in through the seasons?
16.
The core GBP 1 increase you mentioned has not moved for a very long time. What’s the risk of that harming Primark’s image as a price leader, or is it still a relative gain or benefit? How does the consumer look at that?
17.
Primark has guided for a leg-down in margins in H2 2022 to September. I think the company is talking about 8%, and 8% again for the full-year next year. Is 8% the floor? Do you see some risk to that? Will it go below 8% for one of the halves in 2023, or both?
18.
You mentioned 10% margins in two years. How does Primark get back to that?
19.
Primark announced click and collect some time ago, before the cost environment got as challenging as it is. It sounds as if the company is still on track for this trial before Christmas 2022. Do you think it’s rethinking some of it because of the cost pressures?
20.
Is the click-and-collect model different in any way to how competitors would run their own click-and-collect businesses?
21.
What are your thoughts on the argument Primark made that click and collect will drive incremental sales? Could this be value-accretive or at least revenue-accretive to the business, or is more about a defensive move, given everyone else is online?
22.
You mentioned an incremental SKU opportunity, and we’ve discussed the broader range and bringing things online for Primark in a click-and-collect facility. Due to the cost environment, you mentioned the need to perhaps shrink the range to reduce complexity. Do you think this change in the cost environment may have influenced the change in thinking behind the click and collet?
23.
In terms of proof of concept, potential rollout and KPIs, I think you said click and collect has to drive incremental footfall and sales. Will Primark be looking to monitor anything else before considering whether click and collect is a success and whether it should be rolled out?
24.
If click and collect works according to plan, where might Primark go next in terms of other ranges outside of the UK? Could this be a group-wide model?
25.
You effectively ruled out the clothing business going properly online, like an online transaction and deliver model. You mentioned that large chairs aren’t appropriate for click and collect. Could Primark think about a home delivery model for its larger homeware items?
26.
What might the risks be to the traditional Primark business in rolling out click and collect more widely?
27.
How does Primark think about its footprint in a post-pandemic world? I know the company was quite optimistic pre-pandemic that there was a lot of space to grow in the UK. Is that a rethink now?
28.
You say Germany is a bit toppy, but Primark has been in the UK for a lot longer than Germany. Is that because the model’s proposition just hasn’t had the same resonance with the German consumer as in the UK?
29.
Looking at Primark’s UK property portfolio or store footprint, you said the company is unlikely now to open big flagship, 85,000-square-foot stores. Do you think it might need to downsize some of these stores now, because obviously it went through a downsizing exercise in the US, which has been very successful. I think it took those learnings to Germany. Might it have to consider this in the UK, or even store closures?
30.
Sustainability has obviously been a big issue in Germany. Could we see that risk in other markets, or do you think this has been quite isolated within Germany?
31.
You mentioned Primark becoming more fashion-forward. I know that was an initiative brought in by CEO Paul Marchant, but that was some time ago. Has the company been getting incrementally more fashion-forward, and do you think it’s been pushed too far right now, given where we are in terms of the environment?
32.
What are your thoughts on competitive threats to Primark? Could you discuss Shein, or any other risks from a competitive landscape perspective?
