LONDON — After shutting its store estate worldwide and putting all new orders on hold, Primark has now committed to paying an extra 370 million pounds on product that was already in production and due for delivery by April 17.
The Dublin-based retailer known for its rock-bottom prices on fashion, beauty and accessories said Monday the outlay would be “over and above” the 1.5 billion pounds of stock in stores, depots and in transit that it has already paid.
Primark said its latest commitment follows “extensive one-to-one conversations with our suppliers, which began four weeks ago and helped us to identify mitigating options, including extended payment terms.”
The company said its product and sourcing teams “would continue to work closely with suppliers to implement these plans.” The company said that where suppliers need new sources of credit, Primark would seek to assist by, “for example, demonstrating our commitment to orders, initiating conversations with international lenders and liaising with governments.”
Looking to the second half of the year, Primark said it hopes to resume placing future orders for autumn-winter stock once there is further clarification of the reopening of stores.
Each country has sketched out its own timetable of reopenings as lockdowns begin to lift. France and Italy will begin easing restrictions next month, and the U.K. has tentative, but still unconfirmed, plans to do the same. In the U.S., it will be up to each state’s governor to decide when to open up again.
As reported, Primark had previously committed to paying for orders that were in transit or booked for shipment by March 18. Primark said its latest decision brings total stock to nearly 2 billion pounds while its stores remain closed.
Primark’s chief executive officer Paul Marchant said the commitment to further payments reflects Primark’s ongoing negotiations with its suppliers.
“We have been in close and regular contact with our suppliers over the last few weeks to find a way forward, and to pay for as much of the previously ordered product as possible,” he said. “Transparency and clarity have been at the heart of our longstanding relationships with our supply base and we were obviously disappointed that we were not initially able to commit to this stock. Our partnerships with our suppliers are invaluable and we want to continue to support them as we navigate our way through this global crisis.”
As reported, bosses at Primark and its parent Associated British Foods have also taken a pay cut, with Marchant requesting that his base pay be reduced temporarily by 50 percent.
Primark has shut all of its 376 stores in 12 countries and canceled all future orders due to the spread of the coronavirus. The company, which does not sell online, said last month the closures will represent a net sales loss of some 650 million pounds per month.
In the meantime, Primark confirmed it has made significant reductions in discretionary spend and progress in reducing fixed costs following discussions with partners such as landlords, and has also confirmed that it is taking advantage of government support in the countries where its stores operate. It estimates that it will able to recover some 50 percent of total operating costs.
In a report published earlier this month, Morgan Stanley argued that prompt payment to suppliers increases cash “burn” during a crisis such as this one when cash it king. The bank also pointed out that by delaying payment, retailers also risk damaging their reputations with suppliers, customers and some investors.
“Some suppliers could be forced out of business [which could cause supply chain disruption further down the line], whilst others might refuse to offer credit to late payers in future,” the bank said, calculating that Primark’s parent ABF would have a little more than 80 weeks of cash cover if it had zero revenue coming in and chose to withhold all payments to suppliers.