A cashier hands shopping to a customer at a Primark clothing store, operated by Associated British Foods Plc, on Oxford Street in London, U.K., on Friday, Feb. 26, 2016. Diversification has helped power Primark from its birth in the 1960s as an Irish discount clothing chain to aggressive expansion across Europe and more recently into the U.S. Photographer: Luke MacGregor/Bloomberg
© Bloomberg

As a freezing Siberian weather front, rejoicing in the nickname “The Beast From The East”, reduces UK temperatures to -5°C, are your wardrobe choices likely to include: “cropped, wrap-front floral tops”, accessorised with “retro sunnies” and “a drop of California love”? Or “a few printed tees, for SoCal skater feels”?

No, nor are Lombard’s. And for Associated British Food’s Primark clothing chain, which is currently offering such “feels”, this is potentially a problem. No one wants a “cropped” anything when conditions are quite so extreme. Apart from at its Newcastle outlets, perhaps — where “a few printed tees” would probably constitute overdressing.

Back in October, though, ABF had the opposite problem. No one in Berlin or Paris wanted its winter coats while temperatures were hitting 23°C.

On Monday, then, ABF tried to reassure investors about the impact: Primark’s like-for-like sales will probably fall 1 per cent in the 24 weeks to March 3 but sales of spring/summer ranges have been “encouraging”.

However, a closer look at the numbers suggests the real challenge for the business is not seasonality, but novelty and availability.

Primark’s total sales in the period are set to be 9 per cent higher — because of the amount of store space it is adding: 1.2m sq feet in the full year. Old stores may not be increasing sales so rapidly but new outlets in Carlisle, York and Milton Keynes are pulling in the wannabe SoCal skaters. Even if a T-shirt is merely de rigueur on Tyneside, it can be to die for in Cumbria.

This hints at maturity — for Primark’s business, if not its customers. Arguably, the lack of an online sales channel — given the delivery costs on a £3 T-shirt — has kept its value proposition a novelty for shoppers in parts of the country. But Primark will ultimately run out of new locations. Its volume share of the UK market is almost 17 per cent on some estimates, so growth must slow. In 2004, UK like-for-like sales were up 8 per cent; last year it was 1 per cent.

Margins are improving, thanks to better buying and dollar weakening. Nevertheless, with Primark contributing 54 per cent of ABF’s profit, new US store openings and any online plans will be crucial to overall growth prospects. Some analysts say a valuation of 22 times earnings — the low end of its historic range — reflects “question marks” over that US expansion. But anecdotal evidence of 20 per cent US sales growth and falling losses after warehouse investment suggests answers are being found.

If anything, the test will be selling California love back to Californians. And making winter coats orderable outside of October by Parisiens. Investors must hope this proves easier than selling ice to Eskimos.

Not a diamond geezer

When a revolution fails, turn it into a marketing strategy, writes Kate Burgess. In June 2016, Lucara Diamonds challenged mining’s old-timers by selling the biggest sparkler found in a century in a public auction. It was a first in an industry where stones are typically sold via invitation-only tenders to rough diamond dealers and diamentaires. But the stone didn’t sell. Still, William Lamb, outgoing chief executive, called the sale “brilliant marketing” (no pun intended).

Lucara is now threatening insurrection again. Mr Lamb is handing over to Eira Thomas who is that rare thing: female and a mining industry veteran. With her comes Clara Diamond Solutions for $29m. Clara is developing blockchain technology to match sellers directly to buyers. It will bypass the old system where miners parcel diamonds into batches that are passed through cliques of dealers, cutters and polishers to jewellers.

Buyers will pay for what they need, rather than taking on job-lots and discarding unwanted sparklers at reduced rates. Prices will steady and the market will be more transparent. Stones will be easier to trace. That could be valuable to millennials less interested in trophy trinkets than their origins.

However, Lucara’s peers will have to buy in for it to become a revolution. And the diamond industry has never been quick to change.

Provident’s divine?

In 2017, when doorstep lender Provident Financial lost its best credit collection agents to a failed revamp and its reputation to a regulatory investigation, it lost 68 per cent of its market value. It lost another 13 per cent on Monday on reports that it might need a £500m rights issue. But with £34m in cash, £66m in debt facilities, dividends suspended and a regulatory fine estimated at £235m-£300m, it is likely to need far less. Numis analysts even think its £883m market value could head nearer £3bn once the doubt over the fine is removed — so shareholders backing the rights issue should double their money. Where one door closes . . .


Diamonds: kate.burgess@ft.com

Get alerts on Associated British Foods PLC when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article