Why won’t Penneys sell online?

Store closures have hit the retailer hard, so why doesn’t it offer online shopping?

Penneys broke its daily sales records in Ireland when it reopened for Christmas,  but promptly had to close again. Photograph: Dara Mac Donaill

Penneys broke its daily sales records in Ireland when it reopened for Christmas, but promptly had to close again. Photograph: Dara Mac Donaill

 

How many pyjamas, T-shirts and fluffy cushions will you be buying once the shops finally reopen again? Well, Penneys for one will be hoping quite a lot, as the fashion retailer has suffered more than most as a result of Covid-19 restrictions.

Almost four out of every five of its stores – or more than 300 – are closed, while two of its biggest markets, in Ireland and the UK, have faced some of the most severe lockdowns of anywhere in the world.

Unsurprisingly then, the pandemic has hit the retailer hard. It expects to report lost sales worth some £1.1 billion (€1.3 billion) in the six months up to the end of February, with further losses expected in the second half, as shops remain closed.

And yet, despite this apparent pain, despite a sector that was already embracing ecommerce before the pandemic accelerated the transition, Penneys, or Primark as it is known outside of Ireland, is steadfastly holding onto the old way of shopping.

In person, in store.

The only problem, of course, is that for much of the past year this simply hasn’t been possible in many of its markets; which begs the question as to why it hasn’t made any efforts to tap the online market.

Pandemic hit

There is no doubt that a lack of an online presence has handicapped the retailer, at a time when others are embracing, and thriving, from online sales. Last year, the retailer was hopeful that buoyant sales over the Christmas period could help reverse lost sales from autumn closures, but the prolonged nature of the latest lockdowns, in many of its markets, means the situation has deteriorated.

Sales for the first six months of its financial year, to end-February 2021, are expected to decline by 40 per cent, down from £3.7 billion to about £2.2 billion, and with stores still closed in the UK and Ireland, it’s likely to take a hit into the second half of its financial year also, with a figure of about £480 million put on this.

Contrast this with the performance of its peers over the past year. Asos and Boohoo, two reasonably priced online-only retailers aimed at the youth market, saw sales rise by about 40 per cent in the last four months of 2020.

And even those who depend heavily on their network of shops have benefited substantially from online sales.

Zara owner Inditex, for example, which also has the Pull & Bear and Massimo Dutti brands, reported a 28 per cent decline in sales in the year to end-January. But online sales helped to stem the tide, advancing by 77 per cent in the year.

Too cheap for ecommerce

So why doesn’t Penneys go online?

Well, it seems the reason so many people love it, is the very same reason why it won’t follow in the footsteps of an Asos or Boohoo.

Costs.

The profit margin on a €3 T-shirt is tight; Penneys makes its money on volume, not margin. Online shopping, with all the related logistics costs, could mean that delivery costs would exceed the value of many of its goods.

It did try such a venture. Back in 2013 it linked up with Asos for a 12-week trial period, but despite strong demand for its wares, it terminated the contract at the end of the trial, reportedly due to the strong fees Asos was charging for selling on its site.

Another issue is returns, which plagues many online retailers. A recent report by the UK’s online retail association, IMRG, found that 33 per cent of retailers had to increase prices to cover the cost of returns.

But higher prices is not what drives so many shoppers to the brand.

It’s also possibly a function of how shopping in person differs from shopping online. Like a trip to Ikea isn’t complete until you have filled your basket with lint rollers, candles, storage boxes and any other combination of goods that you never thought you needed, so too is a trip to Penneys.

Ikea can flog its candles online because you’re probably also buying a Billy bookcase, or Ektorp sofa, at the same time. But would you be so inclined to stomach delivery charges on a €5 bath pillow or €1 fluffy socks?

Retail revival

In the meantime then, Penneys is likely pinning its hopes on strong demand for its goods when it finally reopens the majority of its stores.

As a spokeswoman said of its lack of an online business, “Penneys is all about an amazing shopping experience in store, which was proven in the past 12 months with the fantastic response from our customers every time we have reopened our stores.”

Indeed Penneys broke its daily sales records when it reopened its Irish stores ahead of Christmas, as some stores opened around the clock to cope with the demand.

And, while some shoppers may have turned to Dunnes Stores or Marks and Spencer for bed linens, towels and nightwear, or other online retailers, others will be keenly awaiting the return of the cheaper retailer.

Penneys, presumably, is of the view that if it isn’t broke, don’t fix it. But this may simply be not enough any more; the pandemic has changed more than just how we shop. It’s changed where we shop. A lunchtime stroll on Henry Street has been replaced by an online browse.

And the retailer isn’t immune to this. Prior to the pandemic, it was in discussions with the owners of the Dundrum Town Centre to expand its presence in the shopping centre, moving into a considerably larger unit spread out over two floors.

Now, however, it has “paused” this plan – which may still go ahead – while it has also looked at downsizing some of its international stores.

And it could be softening too, its stance on online shopping. Back in January, the retailer said it was “not in its plans” to open an online store. But the brand has now told The Irish Times that it has “no immediate plans to trade online”.

Given its success as a bricks-and-mortar retailer, it’s difficult to imagine Penneys couldn’t find a way to bring value to an online offering too.