Will M&S’s long-awaited online progress force Primark to revisit its bull-headed stance?


The decision to double down on store expansion appears to mark out Primark from the rest of the pack in the retail sector.

For while the clothing retail arm of Associated British Foods PLC (LSE:ABF) expects to open another 130 new outlets (up to 60 of them in US), its rivals are making up lost ground online.

Laughably to some, Primark’s internet strategy extends to digital catalogue from which one gets an early glimpse of items in-store with no facility to buy or even reserve the t-shirt or coat in question. All very late 1990s, it would seem.

In the case of Marks and Spencer Group PLC (LSE:MKS), which on Wednesday went against a precedent dating back decades to upgrade its profit forecasts, its second-, third-, or fourth-mover status in digital retail is proving little impediment to success.

Its interims revealed a rejuvenation of the clothing and home business, the perennial problem child of the last 15 years or so, with full-price sales more than 17% ahead pre-pandemic levels.

Within that, online sales were up almost 61% and the channel now represents more than a third of overall clothing and home revenues. Not bad from a standing start. But let’s face it, Next PLC (LSE:NXT) cottoned onto the trend a while ago – with its Directory business first made available online back in 1999.

Now the defenders of Primark will tell you that by straying online is likely to dilute its operating profit margin, which ABF said in Tuesday’s prelims is recovering to ‘above’ 10%.

For Marks, this is less of an issue when you consider its operating margin at 5.2% is comparable with the profitability of ASOS PLC (AIM:ASC), which is fully online.

Whether that 10% figure is defensible for Primark remains to be seen.

But currently ABF is a cash machine – and one that’s pledged to return those funds to investors.

So, I suspect ABF is happy to continue to invest in Primark stores (rather than plough hundreds of millions into new online infrastructure) and incur the ridicule of the general public while margins and cash generation are high.

Marks by contrast has nothing to lose.

Long-term, it will be interesting see whether Primark can hold its line (and those profit margins), and whether Marks’ decisive move online will sustain the revitalisation of the problematic clothing and homes business.


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