Primark warns of coronavirus impact on supply as sales grow
Primark is the latest retailer to warn about the potential impact of the coronavirus (Covid-19) on its business.
Parent company Associated British Foods (ABF) issued a pre-close interim results statement today (24 February) for the 24 weeks to 29 February 2020, which showed sales at the fashion chain continue to grow but supply problems from China may await in the wake of the devastating virus that has limited manufacturing in parts of industrial China.
Primark sources what it has described as “a broad assortment of its product” from China.
“We typically build inventories in advance of Chinese new year and, as a consequence, are well stocked with cover for several months and do not expect any short-term impact,” ABF said of the coronavirus’s influence on Primark.
“We are working closely with our suppliers in China to assess the impact on their factories and supply chains and their ability to fulfil our current orders. If delays to factory production are prolonged, the risk of supply shortages on some lines later this financial year increases.”
It added: “We are assessing mitigating strategies, including a step up in production from existing suppliers in other regions.”
Aside from the coronavirus warning, the general mood of today's statement was upbeat, with sales at Primark expected to be 4.2% up on last year at constant currency, and 2.5% ahead based on actual exchange rates.
The growth has been driven by increased retail selling space and level like-for-like sales, although the retailer expects a decline in margin, with operating profit predicted to be marginally down on last year.
In the UK sales are expected to be up by 3%, although down by 1.3% on a like-for-like basis. ABF said trading at Primark was particularly good over November and December but weakened in January and February due to strong comparatives in the prior year.
Burberry and Ralph Lauren are among the other fashion retailers to warn about potential sales declines in the wake of the spread of the coronavirus, as stores and other operations have closed temporarily, with supply chains disrupted.
Some 2,592 people have died from the virus in Mainland China, while the death toll outside China has reached 27, including several cases in Italy reported over the weekend.
Leonie Barrie, apparel analyst at business intelligence group GlobalData, said: “Aside from the human impact, the Covid-19 epidemic is having major negative repercussions on the global fashion business.
“If factories can’t operate they won’t be able to ship products. And if they’re not getting the raw materials they need, there will be missed deliveries.
As well as delays of up to two or three months on the delivery of summer fashion collections, there is also the potential for a knock-on later in the year on autumn, back-to-school and even holiday goods.”
She added: “Also of concern is the prospect of even more severe disruption if factories don’t have the cash flow to survive if they are hit by penalties for delayed delivery of goods, or when it becomes a matter of cancelled production rather than delayed production."