Mustafa is shopping for a sweater at the flagship London store of Primark [the name of Penneys shops in the UK], the British low-cost fashion chain, where women are eyeing £6 (€6.90) skinny jeans and summer tops slashed to £1.

But the trip is an unusual treat for the 28-year-old medical registrar who lives in Cambridgeshire. "I don't have a Primark in my town, I buy from Marks and Spencer, " he says.

Unlike most large clothing retailers in the UK and other western markets, Primark does not sell online, although it does have a website and is active on social media.

If it did, Mustafa says, “it would definitely be a boost. I would buy more, especially ‘home clothes’ – all the not-so-pricey stuff”.

Primark, which began trading in 1969 in Dublin as Penneys, has been Britain's fastest-growing high-street fashion retailer for the past decade with sales rising sixfold from £1 billion in 2005 to a forecast £5.8 billion for the year to September 17th. That has made it the main profits generator for Associated British Foods, the family controlled FTSE 100 conglomerate that owns Primark as well as Ryvita crackers and Twinings Ovaltine beverages.

But the chain’s fast-fashion model seems to be slowing. For the first time in 16 years, same-store sales have dropped – mainly in the UK, its most mature and biggest market, which accounts for 55 per cent of sales. Some analysts draw a direct link between the revenue slide and the lack of an online sales platform.

Warren Ackerman, analyst at Société Générale, says: "Primark's lack of a credible internet offering is a problem. Online retailers Asos and Boohoo have both posted strong double-digit growth recently. A large proportion of Primark's customers are in their 20s and this is the generation that shops online."

Global expansion

Primark has been rapidly expanding the number of its stores in the UK, Spain, France, Germany and the Netherlands, taking the total to almost 300. It took the bold step of entering the US a year ago

– a notoriously difficult market for UK retailers – where it has opened five east coast stores, with the potential for 70 over the next decade.

But in a trading update last week, ABF confirmed that Primark’s like-for-like sales in the year to September 17th had fallen 2 per cent. That is a marked change from the 4.6 per cent like-for-like growth it has averaged since 2000, according to Morgan Stanley.

ABF argues that the lack of e-commerce was not behind the sales fall and that Primark outperformed a dismal UK market.

Damian McNeela, analyst at HSBC, agrees and cites data from Kantar Worldpanel, a market research company. "Despite the decline in like-for-likes, Kantar data suggest that Primark managed to hold its market share on a 52-week basis and has increased share in the past 12 weeks. In short, this is a market issue not a Primark issue," he says.

But even if a lack of e-commerce is not to blame this time, Jamie Merriman, analyst at Bernstein, says: “The long-term question for Primark is, can it continue to avoid selling online when it’s such a big part of the market?”

Online sales have risen from 5.5 per cent of the UK apparel market in 2005 to 17 per cent last year, according to Euromonitor, and from 3.6 per cent in the US to 13 per cent.

ABF has argued that Primark’s business model of low prices and high turnover makes the cost of an e-commerce site, with benefits such as free returns that shoppers have come to expect, simply too expensive to operate.

Online trial

Primark did experiment with selling a limited range online through a tie-up with Asos in 2013. But the trial appeared to vindicate Primark’s view that operating a full-service e-commerce site on its modest profit margins – 11.7 per cent in the first half of 2016 – was not financially viable.

John Bason, ABF finance director, said at the time: “What we learnt was that we can sell profitably on the high street much cheaper than anyone can do online . . . that was hugely reassuring, given our commitment to the high street.”

But Primark might have reason to think again. Kate Ormrod, analyst at consultancy Verdict Retail, says for the moment Primark is swayed by the potential that exists in opening stores internationally as well as in the UK, which led to a 9 per cent rise in sales in the year just ended.

“It’s when the physical expansion opportunities dry up in the UK that they’ll have to think about opening up online sales. I’d be surprised if in five years’ time, they didn’t launch online because the argument against it is becoming weaker,” she says.

The question of how to make the economics of an e-commerce site stack up comes at a challenging time for Primark’s profitability. Its operating profits in 2015 were £673 million; analysts expect these to have risen to between £680 million and £688 million in the year just ended but to fall 3-10 per cent next year.

This is because ABF warned last week that the drop in the value of sterling against the dollar would squeeze Primark’s profitability next year, prompting an 11 per cent drop in ABF’s share price.

Primark buys materials, such as cotton, in dollars but makes 55 per cent of its sales in sterling. It made clear that it had no intention of recouping those costs through higher prices, by stating that: “Primark is committed to leading the value sector of the market. . . and maintenance of its price leadership position.”

Adam Kindreich, analyst at Morningstar, says the choice facing Primark is a tough one. “Whichever way Primark goes, there’s a risk to its cash flow. If they don’t sell online, it will be inevitable that in the future they will start losing market share. And if they do sell online, there would be a negative impact on cash flow from initial start-up losses, which is not positive for profitability.”

But Richard Hyman, a veteran independent retail analyst, says Primark is right to take its time. “Too many retailers chase sales at any price – and they are not long for this world. Primark will sell online one day, once they have figured out the most practical way of ensuring they have high enough transaction values not to shoot themselves in the foot.”

Back at Primark in London’s Tottenham Court Road, Aisha Salih, who works in IT support, says she would not rush to buy its clothes online. “Primark’s one of those stores where you really need to see what you are buying; I don’t have much confidence in their quality.”

– Copyright The Financial Times Limited 2016