Primark and Boohoo both sell own-brand, cheap clothes to young people, with savvy digital marketing. But beyond that they are very different businesses (and to be fair, trade on vastly different multiples).
Boohoo is an online retailer that turns out the latest trends on ultra-quick turnaround times. Primark looks much more like an old-fashioned retailer. It has no online store (though a popular webpage), owns a hefty chunk of its real estate and has far longer lead times on its merchandise.
Both reported results this week: half-yearly figures for Primark’s parent company, Associated British Foods, and full-year ones for Boohoo. It appears both strategies are working. Primark had profits for the 24 weeks to the start of March, up 25% year-on-year as operating margins were boosted by a weaker US dollar.
The dollar effect on margins should dissipate in the second half of the year, as ABF has hedged its foreign exchange exposure, but in the first half better buying, stock management and fewer markdowns also helped.
Boohoo, meanwhile, reported revenues that topped its latest increased guidance, up 48% year-on-year. Revenues at its fastest growing label, PrettyLittleThing, more than doubled, and its smaller brand Nasty Gal came within a whisker of that. Pre-tax profits were almost 40% higher and underlying margins ticked up.
The challenges Primark and Boohoo face are unsurprisingly different. Primark must solve reputational and management problems in Germany, which have dragged on sales. Like-for-like sales were 1.5% lower in the latest period, though that was better than the 2% fall it had flagged in an earlier trading update. It says it is making progress.
On the other hand, Boohoo needs to work out how to transition to a more mature company as the pace of growth slows; it expects 25-30% growth in the new financial year, and an increase in capital expenditure from £47m to between £50m and £60m. It recently turned to none other than Primark, more specifically the bricks-and-mortar retailer’s former chief operating officer John Lyttle, to lead that process as new chief executive.