Primark finally offers home delivery but will it be profitable?
Something seismic has happened in the world of e-commerce. Despite years of being the outlier in the clothing market, leading fashion retailer Primark has made the major strategic decision to launch home delivery.
This marks a serious change of tack because the company has for years put forward a very coherent argument for why it has not been financially viable for a value-led retailer like itself to offer home delivery. The cost of packaging, delivery, and returns continue to prove a killer for many online clothing businesses.
Subscribe to TRBWhile Primark largely stood alone with its holding out it did seem to make sense. Back in 2024 Paul Marchant, then CEO of Primark, continued to question whether a low-margin, low-price model such as Primark could ever make money selling online when you factor in the cost and resources needed for delivery.
Rather sensibly the company instead chose to focus on leveraging its physical footprint by offering click & collect, which Marchant found was a great driver of customers into stores and it boosted average basket sizes. It proved to be a very good move and was gradually expanded out across the business.
So what changed? For one thing the CEO departed. Marchant left the business in early 2025 after an investigation into his behaviour. He has been replaced by experienced retailer Eoin Tonge.
The other thing that has undoubtedly helped tip the scales towards offering home delivery has been a growing confidence in digital retail the company has gained from the successful click & collect experiment alongside investment in the Primark website, CRM system, and other digital infrastructure assets.
Another factor is the forthcoming split of Primark from its parent company ABF, the owner of Twinings tea and Kingsmill bread along with myriad other non-clothing foodstuffs. The demerger, which is likely to complete in December 2027, is expected to create two new FTSE 100 companies, with analysts predicting that Primark could be valued at as much as £9 billion.
To justify such a valuation and prove that Primark can command a premium as a standalone operation the business will certainly need to find some strong new drivers of growth. These have been hard to come by recently within a European fashion market that has been soft at best. Consider that Primark’s like-for-like sales are expected to drop by 3% in the quarter ending September 12, with the UK and Ireland up 0.4% but continental Europe is the main drag with a rather unhealthy 4.3%.
Adding home delivery should certainly turbocharge these numbers in the UK, which will please City analysts. But what about the level of profitability of these sales? This has been the perennial fly in the ointment of online sales. How do you sustainably make money and not have this persistently offset by the hit taken from horrendous levels of returns?
Primark must feel it has come up with part of the answer here, which involves utilising state-of-the-art distribution centre capabilities. It earlier lost out on the acquisition of a former Asos fulfilment centre in Lichfield to Marks & Spencer. But it has now successfully purchased a smart highly automated fulfilment centre in Sheffield from Boohoo/Debenhams.
The hefty price tag of £90 million clearly went down well with Boohoo/Debenhams shareholders as the share price immediately jumped over 20%. But this will be worth it for Primark if the deal can make a meaningful contribution to margins for its online delivery service. Whether it can solve the thorny issue of rampant levels of returns in online clothing is very much up for debate.
We shall have to wait and see how this all pans out and whether the long wait for Primark to undertake a strategic U turn has been worth it for all stakeholders in the business. Certainly there will be many rivals watching very attentively to how it performs and what can be learnt.
