Gap goes online-only in the UK, Primark doubles down on stores - two extremes of omni-channel retail in the Vaccine Economy, but who's right?

As the shape of retail in the Vaccine Economy evolves, this week saw a clear indication of the omni-extremes that are emerging as Primark doubles down on its stores-only strategy, while Gap announced its latest retreat under the guise of a digital-only approach in Europe.

Primark’s position is a continuation of its long-standing indifference to digital retail. Not even a global pandemic and the closure of its physical stores was enough to shake that belief, despite ongoing criticism on many fronts for not buying into the e-commerce hive mind.

Back in January, Forbes ran a doom mongering analysis of Primark’s digital shortcomings, when it declared that for the 16 weeks up to the end of December, Primark:

“had a revenue decline of 30% because of its closed stores and the lack of e-commerce…That lack of e-commerce is a shocking admission after 10 months of the pandemic, a time when many companies achieved satisfactory revenues through digital commerce.

Others have taken a similarly disapproving stance. Check this out from marketing and design firm Logic Design, which develops e-commerce sites for clients such as MAJIsign and Magic Flower Company, in March:

One of the biggest business stories that has emerged from this COVID-19 crisis is regarding the huge clothing brand, Primark, revealing the importance of eCommerce…One of Primark’s biggest flaws which has caused this damage is that is does not have an online presence. Prioritising their low prices in store meant they didn’t want an eCommerce shop, but this is where they fall against their competition.

But none of this is new. As far back as 2013, Econsultancy was warning:

When the meteoric success of Primark’s high-street operation starts to flag – as surely it must at some point – it may end up having to enter online retail from a position of necessity rather than strength.

But...

It’s certainly true that the COVID closures of physical non-essential retail cut the legs from under Primark last year. But as restrictions have lifted, the firm has roared back into growth. Yesterday it announced third quarter revenues of £1.6 billion, accounting for 40% of its parent company Associated British Foods total sales. In a trading statement, ABF said of Primark:

The relevance and appeal of our value-for-money offering has been evidenced by the number of customers that have returned to shop in person in our stores, across every one of our markets, each time we have reopened post-lockdown. This re-opening has also seen a resurgence in demand for fashion across womenswear and menswear, as customers start to step out of lockdown leisurewear.

Or as ABF Finance Chief John Bason put it to Reuters:

Some of the fashion is flying off the shelves. That is a return to people really wanting to buy things because they’re starting to go out again, whereas previously, after the other two lockdowns, it really was all about leisurewear or nightwear or things for the home.

So it remains a case of ‘stores-first’ for Primark. The reasoning is simple enough. Primark is a high volume, low priced and low margin business. E-commerce is simply too expensive. Even the likes of Walmart, the largest retailer in the world, can’t make a profit out of its e-commerce operations yet.

That’s not to say there’s no interest in digital platforms. The firm has made good use of social media channels to support its marketing efforts and yesterday announced that it will be introducing a new website in 2022 that will allow shoppers to check out products and check stock availability before visiting a store. Back to the trading statement:

We have grown our following across Primark’s social media channels to 24.5 million from 22 million at the end of the last financial year. Digital has a critical role to play as part of Primark’s marketing mix and we are now investing in a market-leading digital platform, a key component of which will be the launch of a new customer-facing Primark website early in the next calendar year. The improved functionality of the website will allow us to showcase a much larger proportion of the Primark range and provide to customers range availability by store. We are also strengthening our digital marketing capability to enable us to deliver more personalised content to customers.

Bottom of the Gap

In stark contrast to Primark’s stance - and profitability - stands The Gap As diginomica has noted previously, tracking the omni-channel fortunes of the iconic US retailer has been a bumpy ride over the years. A few years back, the firm abruptly shuttered its Banana Republic stores in the UK and moved the brand online-only. This week it’s decided to do the same with Gap itself, announcing the closure of 23 stores across the UK and Republic of Ireland at the end of this month, followed by the remaining 58 stores by 30 September, "due to market dynamics in the United Kingdom and the Republic of Ireland”. What those market dynamics are, are not explained.

This is the latest iteration of the firm’s wider 2023 Power Plan, the latest attempt to turn around the retailer’s flagging fortunes in the US. The retreat to ‘Fortress America’ doesn’t come as a complete shock. Last October the firm warned:

One of the options being explored is the possible closure of our company-operated Gap stores in the United Kingdom, France, Ireland and Italy at the end of the second quarter in 2021. In addition, we are reviewing our warehouse and distribution model and our Gap and Banana Republic company-owned e-commerce operations in Europe. 

This week it was confirmed that alongside the UK store closures, the firm’s French operations are likely to be taken over by Hermione People and Brands, the retail branch of FIB Group, while a similar offloading deal is being negotiated in Italy.

As for the UK, that move to e-commerce only is the latest blow to the British high street this year, following the collapse of Debenhams, snapped up by online-only retailer Boohoo, and the Arcadia retail empire, with e-commerce firm ASOS buying up Topshop, Topman and Miss Selfridge and taking them online.

My take

So who wins here? Primark with its focus on the store or Gap cutting its costs by heading to an online-only model?  In reality, it may be too early to say definitively. There’s still a sense of re-awakening when it comes to non-essential retail with shoppers enjoying getting back into stores to wander the aisles.  In my city, the lines outside Primark went right around the block on the first day of re-opening as shoppers poured into the store to satisfy pent-up demand.

But that won’t last. If there is a ‘new normal’ in the Vaccine Economy, then part of that will be a resumption of the idea that going shopping on a Saturday afternoon is no big deal, just part and parcel of ordinary life.

When it comes to Gap and Primark and their differing directions of travel, I’m inclined to fall in with commentary from Susannah Streeter, senior investment and markets analyst at financial services group Hargreaves Lansdown:

The Gap-sized hole in the high street…will be hard to fill, given the big names which have already left bricks and mortar shops behind. But Primark, one of the big fashion chains left standing, it's likely to clean up from Gap’s exodus, attracting browsing shoppers whose options are dwindling. It is still turning heads on the high street, while one by one other fashion retailers fall by the wayside.

With these impressive numbers, Primark seems even more unlikely to reverse its decision not to launch a digital sales platform. Primark may look increasing like an anachronism, a bricks and mortar island fighting off an encroaching online tide, but it has shown that with a strong social media presence it can still entice queues of shoppers through its doors.

What’s missing from this analysis is one important additional factor - people actually want to buy what Primark has to sell. And the blunt reality for Gap is that people don’t want to buy what it has to sell and haven’t for a long time. It’s a once-iconic brand that’s been desperately tired and in need of revitalisation for many years. It’s doubled, tripled and quadrupled down on digital, but all that has done is expose the fundamental retail reality - you can spend all the cash you like on digital transformation, but if you don’t have products for sale that people want to buy, then  all you’ve done is made it easier to not buy them, online and offline.

That’s why I chuckled when I read The Guardian’s spin on the latest Gap gambit:

Putting a positive spin on the news, Gap’s move to digital-only in the UK could be seen as part of a plan, a sign the audience it is looking to appeal to under West is a younger demographic who shops online-only, the consumers behind the success of Boohoo and Asos in the past year. Gap is betting that stores – expensive to run and suffering from less demand – are no longer necessary and that the digital-first trend continues as the world comes out of a pandemic.

To which I say, when you’ve fallen into a gap, you’ll struggle to climb out.