IS ECOMMERCE A REAL

2013 Amadeus IT Group SA

OPPORTUNITY?
DECISION TERMS
KEY MAIN
FACTS FIGURES

q Subsidiary of ABF
q GBP 5.3b 2015 revenues
q Leading fast-fashion retailer
q GBP 673m 2015 operating profit
Up to the minute designs
q 11.2M sq. ft. selling space
Value-for-money prices
q 57k employees
q Over 178 store fronts in the UK

Considering the 42.9M potential online apparel shoppers in the UK (as of 2015),
should Primark offer an e-commerce service for this market?

q The decision must take into account the following terms and conditions:

2013 Amadeus IT Group SA

GBP 1.4m estimated total investment
Increase space & personnel
No in-store pickup - shipping partner DHL
Free shipping orders > GBP 50
GBP 3.99 on orders < GBP 50
Returns: customer pays shipping < GBP 50 purchase; in-store
returns/exchange accepted
COMPANYS CURRENT SITUATION
Primark is losing investor confidence due to falling revenue sales and lack of
innovation
q Recent data reveals Primarks
negative performance:
2% drop in sales 15 to 16
Expected 2-3% falling
operating profits in 2016
Primarks Like-for-like Sales growth
(2000-2016)
Source: ft.com
q Parent company affected by
Primarks latest performance:
25% drop in ABF price in 2nd
quarter
22% fall in the most recent 4
weeks
ABF Stock Price Evolution
Past 12 Months
2013 Amadeus IT Group SA
Source: Google
PRIMARK VS COMPETITORS
q Brick-and-mortar store:
Performance impacts directly online sales, gaining new customers
Average ticket purchase of customers are also drivers for ecommerce

Correlation between number of brick-and-mortar Primarks average purchase

stores and online sales: the more physical stores, ticket is high enough to
the greater the sales are online consider ecommerce

#Brick-and-mortar stores vs Online Average Purchase Ticket

Sales In-store
8000 7013 2500

Millions
2164
# of Stores

2000 50
6000 39,9
40 34 33,1
3924 1500
4000 30
2500 1000
430 1382 20
2000 500
240 539 791,5 845 10

2013 Amadeus IT Group SA

205
0 0 0
* 0
Inditex Primark H&M

Source: america-retail.com

Number of Physical Stores Online Revenues (milliions)

Sources: companies financial statements and Bloomberg estimations

(*) NO AVAILABLE ONLINE REVENUES FROM ARCADIA

RECOMMENDATIONS

Primark must enter the ecommerce dimension. The decision can be supported by:

1. From a cost perspective:

q 0,2% of 2015 operating profit needed for initial investment
q Increase in shipping costs outweighed by boost in revenues

2. Ecommerce creates added consumer surplus

q Gap reduced between customer expectations and shopping experience
q Increased demand for Primark merchandise

3. Optional Membership for customers to pre-order garments:

q Fees from subscriptions on a month/annual basis would also absorb
shipping costs and allow more accurate adjustments between S&D

2013 Amadeus IT Group SA

4. Current industry trends:
q Online retail revenue in the UK has risen 10% in the past 10 years and is
expected to maintain steady growth(1)

5. Average premium charged by fast fashion retailers(2):

q 202% greater than Primarks, which leaves ample opportunity to adjust
online prices if needed without compromising its current pricing strategy

(1)ft.com
(2)Morgan Stanley Research