Associated British Foods PLC (Primark)

Sector: Apparel specialty retail Countries of operation: Key markets in Austria, Belgium, Czech Republic, France, Germany, Ireland, Italy, the Netherlands, Portugal, Spain, the UK and the US Key product categories: Accessories, agricultural products, apparel, beauty, footwear, grocery and houseware Annual Metrics [caption id="attachment_148533" align="aligncenter" width="700"] *Store sales growth on a like-for-like basis since reopening to the year end
**Trailing-twelve months ended on March 5, 2022
Fiscal year ends on September 18 of the same calendar year[/caption]   Summary Founded in 1935 and headquartered in London, Associated British Foods PLC (ABF) is a multinational food, ingredients and retail group that operates in more than 50 countries across Africa, Asia Pacific, Europe and the Americas. The group operates under five business segments: Agriculture, Grocery, Ingredients, Retail (Primark) and Sugar. The Grocery segment provides baked goods, bread, cereals, corn and cooking oil, milled flour, meat and other products. The Agriculture segment supplies technology-based products to farmers and food manufacturers. The Ingredients segment manufactures and supplies enzymes, lipids and surfactants, as well as related services to industrial sectors. Primark, ABF’s Retail segment, operates in the value fashion sector, with stores located in 14 countries, including Austria, Belgium, Czech Republic, France, Germany, Ireland, Italy, the Netherlands, Poland, Portugal, Slovenia, Spain, the UK and the US. Its product range includes accessories, beauty, footwear, housewares and apparel for children, men and women. As of March 5, 2022, Primark operated 402 stores, with a total trading space of around 17.0 million square feet. Company Analysis Coresight Research insight: The company’s value retail business, Primark, offers fashion at lower prices than other discount/value players and contributes around half of the group’s profits. In the first half of fiscal 2022, ended March 5, 2022, Primark reported robust recovery from the Covid-19 crisis, with sales growing by strong double-digits year over year, owing to the easing of trade restrictions, particularly in the UK. All Primark stores were open throughout the first half of fiscal 2022. Primark is also transforming its digital capability. In April 2022, the company launched a new customer-facing Primark website in the UK, aiming to deliver a more personalized customer experience. The new website has improved functionality and showcases a much larger proportion of the company’s assortment, giving full details of range availability by store. The new website is seeing a positive early reaction from customers—in the two weeks following the launch, traffic to the new website doubled. Primark will continue to add new features, including a customer account and wishlist function, enabling more personalized marketing. The company will roll out the new Primark website across all its markets by autumn 2022. Despite all of the fresh functionalities, the new website will not facilitate online ordering—the lack of an online sales platform at Primark remains a long-term concern for the company. Primark has limited store penetration in its major markets except for the UK and Spain and has strong opportunities to expand its market position in countries including France, Italy and the US. In April 2022, Primark reiterated its plan to open over 100 new stores across the globe in the next five years. In the US, the company plans to open 13 to 60 stores by 2027. As many value-based retailers are increasingly being scrutinized for environmental and welfare issues in their sourcing models, Primark has emphasized that it is committed to being a responsible retailer through its “Primark Cares” initiative, launched in September 2021. The initiative focuses on reducing carbon emissions, minimizing fashion wastage and improving working conditions in suppliers’ factories. In April 2022, Primark stated that 39% of product sold in stores came from sustainably sourced materials, up from 25% at the time of launch of Primark Care. Furthermore, Primark targets to train 160,000 farmers in the sustainable cotton methodologies by the end of 2022, from 150,000 as of April 2022.

Tailwinds

Headwinds

Diversification across food and retail with market-leading positions Huge market share and strong price positioning of Primark in the UK and Spain Opportunities for expansion in the US and Eastern Europe for Primark Focus on sustainable initiatives, such as Primark Cares, which may attract customers, employees and investors New customer-facing website in the UK to enable personalized marketing and drive shoppers’ conversions

Lack of e-commerce business at Primark Increasing inputs and transportation costs Fluctuation in the currency exchange rate makes sourcing more costly

Strategy On April 26, 2022, Primark reiterated its long-term strategy, unveiled in November 2021—which centers on the following key focus areas: Promote ethics and sustainability

• Ensure that all its apparel are recyclable by design by 2027.
• Ensure all clothing is made from 100% recycled fibers and sustainably sourced materials by 2030.
• Reduce 50% of carbon emissions across its entire value chain by 2030.
• Eliminate all single-use plastics in Primark’s own operation by 2027.
• Require every supplier to sign up the Primark Code of Conduct, which is based on the internationally recognized Ethical Trade Initiative (ETI)
• Inspect every supplier factory at least once a year through its team of 130 specialists.

Extend product offering to meet changing customer needs

• Expand Primark Home department to offer wider-ranging home and lifestyle products.
• Expand its outdoor apparel and footwear category.

Brick-and-mortar expansion

• Grow total store estate to 530 stores by fiscal 2026, from 398 in fiscal 2021.
• Accelerate the expansion of its selling space in the major markets of France, Italy and the US.
• Continue to explore opportunities in new markets.

Invest and facilitate collaboration to support its businesses

• Invest in selected value-added capabilities to support its businesses, including procurement, talent development and management, and transaction execution, among others.
• Facilitate collaboration across its businesses and provide specialist resources in areas such as finance, insurance, IT, legal, property, tax and treasury.
• Create long-term value for its business partners, employees, shareholders and society.

Ensure long-term and sustainable financial growth

• Manage the group balance sheet to ensure long-term financial stability, irrespective of the state of capital markets.
• Engage with its businesses and ensure disciplined budgeting and monitoring.
• Make capital funding available to all its businesses where returns meet or exceed defined criteria.

Revenue Breakdown (FY21)   Company Developments

Date	Development
April 26, 2022	Primark states that it will increase the prices of its autumn and winter ranges as the clothing chain is not able to offset cost increases.
April 6, 2022	Primark launches a new Disney-themed Winnie The Pooh collection, featuring loungewear, sweatshirts and joggers.
April 7, 2022	Primark launches a new website in the UK, allowing consumers to browse stock and check product availability before heading to the stores—providing a better connection between browsing online and buying in store. The clothing retailer does not plan to sell online.
February 16, 2022	In collaboration with UK-based bakery chain Greggs, Primark launches a limited-edition fashion line, including hats, hoodies and sliders, in 60 UK stores. Primark and Greggs also open a 130-seater cafe in Primark’s largest store in Birmingham and a pop-up boutique in Soho.
January 20, 2022	Primark announces plans to cut 400 retail manager positions in the UK as part of its reorganization to offset increasing cost pressures on raw materials and transportation. Primark does not provide timeline.
November 29, 2021	Primark announces a €250 million ($282 million) investment in Ireland as part of the retailer’s 10-year capital injection plan for physical store expansion and redevelopment.
November 17, 2021	Primark signs a five-year contract with logistic company Wincanton for the provision of transport services across Primark’s UK stores. Through this partnership, Primark aims to reduce transport carbon emissions and ensure supply chain network optimization.
November 10, 2021	Primark states that it expects global supply chain disruption to last until 2023 and confirms its focus on seasonal items.
November 9, 2021	Primark announces plans to open over 100 new stores across the globe in the next five years as the retailer pushes into France, Italy, Spain and the US. In the US, Primark plans to open 13 to 60 stores during the period.
October 18, 2021	Primark launches an expansion of its houseware range with a larger offering, including furniture, decorative items, wall arts, rugs and candles, in its Milton Keynes flagship store.
October 5, 2021	Primark announces plans to launch its homeware range in 25 stores in the UK by the end of October 2021.
September 27, 2021	Primark collaborates with InMoment, a US-based customer experience (CX) optimization platform, to enhance the retailer’s customer experience and increase customer loyalty and retention and repeat business.
September 15, 2021	Primark commits to source all of its clothing from recycled or sustainable materials by 2030.
July 1, 2021	ABF announces that Primark will launch a new website in early 2022, which will give full product details. However, the website will not provide an option to purchase clothing online.
June 17, 2021	Primark opens its first Czech Republic  store in Prague, marking the 14th market for the retailer.
June 14, 2021	Primark announces that it will extend and refurbish its store at Luton’s The Mall shopping center in the UK by winter 2021. The store will be extended by 40% through the acquisition of a neighboring vacant store and, upon completion, the store will span 35,500 square feet.
May 25, 2021	Primark collaborates with sustainable textile producer Recover to launch a new sustainable women’s leisurewear collection.
May 10, 2021	Primark continues to expand its US footprint, opening two new stores at Macerich’s shopping centers. The company already has three stores at Macerich and the new leases will further expand their relationship.
March 31, 2021	Primark announces that it will open eight new stores across Italy by late 2022, bringing the retailer’s total store count in the country to 14 and more than doubling its total trading space in the country to 65,000 square meters.
March 31, 2021	Primark suspends new production orders in Myanmar in the wake of the reimposition of military rule in the country on February 1.
January 19, 2021	Primark emphasizes that it remains dedicated to a store-only strategy and stated that it has no intention to sell its clothes online, despite losing more than £1.0 billion ($1.4 billion) in sales due to lockdown-related store closures.
December 15, 2020	Primark enters into a lease agreement with Klépierre, one of the leading mall operators in Europe, to open three new stores in France and four new stores in Italy.
October 14, 2020	Primark opens a new superstore, with 60% additional retail space and 60 additional jobs, in Southend High Street, UK. The store showcases three floors of fashion and features new trends for children, men and women, including accessories, beauty, footwear and homeware.
February 17, 2020	Primark opens its first-ever popup store, spanning around 1,500 square feet, at Boxpark Shoreditch in east London. The popup store celebrates the launch of its wellness collection, which features more than 75 products across homeware, menswear, skincare and womenswear. The wellness collection is part of the company’s Primark Cares initiative, which focuses on sustainable and environmentally friendly initiatives.

  Management Team

• George Weston—CEO
• Michael McLintock—Chairman
• John Bason—Finance Director

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Source: Company reports/S&P Capital IQ