# Associated British Foods Re-opening of Primark Stores

- Link: https://www.directorstalkinterviews.com/associated-british-foods-re-opening-of-primark-stores/412827461
- Published: 2020-06-01T07:43:45+01:00
- Author: Amilia Stone

**[Associated British Foods plc](https://www.directorstalkinterviews.com/ftse-company/associated-british-foods/abf.l)**(
LON:ABF), the diversified international food, ingredients and retail group, has 
today issued the following statement which includes the likely timetable for the
re-opening of Primark stores, early trading indicators from the recently re-opened
stores which have been both reassuring and encouraging, and a group forecast with
an improved cash flow.

The group trading update scheduled for 2 July will include Primark sales which will
be informed by trading in stores soon to re-open and an additional four weeks of
data.

**Primark stores**

As a result of the rapid spread of Covid-19 in our markets, all Primark stores were
closed over a 12-day period from 11 March. As previously advised, this resulted 
in a loss of sales of approximately £650m for every month that all stores were closed.

We took a number of actions in Primark to substantially reduce the cash outflow 
resulting from this loss of sales. These mainly comprised cancellation of future
orders for goods where the handover date from the supplier was after 17 April and
a range of measures to reduce operating overhead while the stores are closed. The
most significant contributor to the reduction in overheads has been access to government
employment retention schemes across Europe, assisted by a temporary voluntary reduction
in salaries for all Primark employees not covered by a government scheme. We continue
to make progress in our discussions with landlords to renegotiate some of the terms
in our lease arrangements. In April and May, we exceeded our previously advised 
estimate of a 50 percent reduction in Primark overheads.

As European governments have begun to ease restrictions on clothing retailing we
have been able to re-open stores. Safety has been our highest priority in our detailed
preparations to welcome our customers and employees back to stores. We are following
government safety advice in all markets. Importantly, we will apply the valuable
experience gained from more than 100 stores which are already open as we open the
remainder of our estate, including stores across the UK. Social distancing protocols,
hand sanitiser stations, perspex screens at tills and additional cleaning of high
frequency touch points in the store are among the measures we are implementing. 
Personal protection, including masks and gloves, are being made available to all
employees. These measures are designed to safeguard the health and wellbeing of 
everyone in store and to instil confidence in the store environment. Feedback from
customers and employees in those markets where the stores are open has been positive.

The table below sets out those Primark stores that have already re-opened, those
with a confirmed re-opening date and expected dates for the remaining stores where
we still await confirmation.

As at today, Primark is trading in 112 stores which represent 34 percent of our 
total selling space. Primark is now working to re-open all its stores in England
on 15 June, following the recent announcement by the UK Government. At that date
we expect to be operating from 281 stores representing 79 percent of total selling
space. We await further guidance for the stores in Northern Ireland, Wales and Scotland
and anticipate openings in late June.

By 15 June, we will also have opened three new stores which were originally planned
for opening in our financial third quarter: Mons in Belgium and Gropius in Berlin,
Germany have already opened; and a store in the Trafford Centre, Manchester in the
UK will open on 15 June. When the remainder of our stores are re-opened, we will
then be trading from 15.9m square feet of retail selling space across 378 stores.

| **Status** | **Country** | **Re opening Date** | **Stores** |  | Space
**m sqft** |  | 
| **Opened** |  |  |  |  |  |  | 
|  | Austria | 4 May | 5 |  |                 0.2 |  | 
|  | Netherlands | 6 May | 20 |  |                 1.0 |  | 
|  | Belgium | 11 May | 8 |  |                 0.4 |  | 
|  | Italy | 18 May | 5 |  |                 0.3 |  | 
|  | Germany | 15-19 May | 32 |  |                 1.8 |  | 
|  | Slovenia | 18 May | 1 |  |                 0.0 |  | 
|  | France | 22-30 May | 9 |  |                 0.5 |  | 
|  | Spain | 28 May | 25 |  |                 1.0 |  | 
|  | US | 22 May | 1 |  |                 0.0 |  | 
|  | Portugal | 1 June | 6 |  |                 0.2 |  | 
| **At 1 June** | **Subtotal** |  | **112** | **30%** | **5.5** | **34%** | 
|  |  |  |  |  |  |  | 
|  | England | 15 June inc Trafford | 153 | 40% |                 6.3 | 40% | 
|  | Spain | by 4 June | 10 |  |                 0.4 |  | 
|  | France | 5 June | 6 |  |                 0.3 |  | 
| **By 15 June** | **Subtotal** |  | **281** | **74%** | **12.5** | **79%** | 
|  |  |  |  |  |  |  | 
|  | ROI | June – August phased | 36 |  |                 1.1 |  | 
| **Known dates** | **Subtotal** |  | **317** | **84%** | **13.6** | **85%** | 
|  |  |  |  |  |  |  | 
| **Balance** |  |  |  |  |  |  | 
|  | US | Expected late June | 8 |  |                 0.4 |  | 
|  | Portugal |                        “ | 4 |  |                 0.1 |  | 
|  | Scotland, Wales, NI |                        “ | 37 |  |                 1.2 |  | 
|  | Spain |                        “ | 12 |  |                 0.5 |  | 
|  | **Total** |  | **378** | **100%** | **15.9** | **100%** |

At the start of the re-opening of stores, Primark had £1.5bn of stock on hand, and
had also made commitment to our suppliers for a further £0.4bn of stock. This compares
to a typical stockholding of £0.9bn. This higher level of stock is due to having
taken possession of all finished goods in transit at the time our stores closed 
and a further commitment to our suppliers to take all products that were planned
for handover by 17 April, both finished and in production.

Our sourcing team has recognised the impact that Covid-19 and the subsequent reduction
in orders has had on the garment supply industry and its employees. The team has
maintained frequent and direct contact with each of our suppliers. We recently established
a fund to ensure that the labour element of certain product finished and in production
for Primark in the most vulnerable countries was paid to those workers. To date,
we have made initial payments, totalling some £10m. Importantly, following clarification
of the timing of store re-openings, we want to ensure that our stores will offer
exciting seasonal product for Autumn Winter and we are now placing substantial orders
for this seasonal stock with our suppliers.

The excess stock on hand mainly comprises everyday continuity, non-fashion and non-
seasonal, ranges and some excess Spring Summer stock. The nature of the continuity
stock will allow it to be sold in the normal course of business, albeit at a later
date and without the need for special discounting beyond our normal practices. The
buying team has conducted a detailed review of the Spring Summer stock on hand and
has earmarked certain products to be held in storage for sale in Spring Summer 2021.
ABF remains well positioned to fund and manage the increased working capital. We
will continue our policy of offering the best everyday low prices and will seek 
to avoid any markdown on excess stock.

Trading in our re-opened stores has been both reassuring and encouraging, with customer
queues outside most stores and, once in store, spending on larger basket sizes. 
However, the trading results since re-opening were delivered over a very short period,
will have been influenced by a number of specific factors, and may not be indicative
of a long term pattern. Cumulative sales since re-opening, on a like-for-like basis,
were down on the same period last year in aggregate. For a number of stores, sales
were ahead of last year. A good number of our regional stores are performing well
and only four stores had initial sales below 50 percent of last year. This included
Damrak in the centre of Amsterdam and our store in Alexanderplatz, Berlin. Both 
of these stores are in the centre of big cities and are suffering from the current
absence of tourism and much lower commuter footfall.

Consumer demand has been strong for children’s, leisure and night wear, along with
summer products such as shorts and t-shirts, reflecting good weather in markets 
where we are trading.

Primark stores pre Covid-19 had a wide range of aggregate sales densities, with 
significant variations in each store during a day and between days of the week. 
Compliance with the requirement to ensure social distancing in our stores has put
an effective maximum on the hourly footfall for every store. For those stores with
low sales densities, the social distancing maximum will not restrict the sales densities
previously achieved, even at peak times. For those stores with sales densities around
the average, this maximum footfall will restrict sales densities at peak trading
times, but we expect some change in consumer behaviour to help mitigate this effect.
However, as long as social distancing is required, we expect it to restrict the 
capacity of our busiest stores from achieving their aggregate pre Covid-19 sales
densities. The extent of that effect will depend on the social distancing rules 
adopted in each country and finding safe operational solutions to improve customer
flow, particularly at checkout which has already been identified as a bottleneck.
Our initial view is that the implementation of social distancing could only affect
sales to some extent in the higher density stores, which represented some 10-20 
percent of pre Covid-19 total Primark sales.

**Food businesses**

We have maintained production at all of our food business facilities, despite the
operational challenges arising from Covid-19. This has ensured the continued supply
of essential products for the food, animal feed and pharmaceutical supply chains.

Grocery operating profit will be ahead of our previous expectations with stronger
sales of branded products sold through the retail channel, more than offsetting 
weaker sales in food service. However, we now expect a lower profit at AB Sugar 
following further disappointing performance at Illovo.

The aggregate operating profit for the group’s food businesses is expected to be
in line with previous guidance.

**Group cashflow forecast**

Associated British Food’s review at the half year of the cash flow forecast for 
the coming year evidenced the group’s strong cash liquidity, with considerable financial
headroom. The cash flow forecast at that time was based on the conservative assumption
that all Primark stores would not re-open until September. The current schedule 
advances the re-openings by some months and should deliver a much improved cash 
flow from trading in the second half of this financial year.

It remains too early to resume earnings guidance for the remainder of the current
financial year.

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