First, it was Gap that overtook the ubiquity of retail chains like The Charming Shops and Casual Corner. Then Gap itself came under fire from international newcomers like H&M and Zara. Now, are we about to see the next big assault in the specialty store space? Is Primark the next large-scale disrupter?
H&M and Zara are known for being lean and running tight ships, but it appears that Primark takes both of those virtues a few steps further. Osum, the online research site, calls Primark’s business plan “strategic brilliance,” with a low-cost corporate culture “deeply ingrained into the company” that might put Sam Walton to shame.
For those of you who don’t have this Irish-based chain (BTW, can anyone think of another retailer out of Ireland that has made waves in the American market?) on your proverbial radar, I suggest you reset your screens. These guys have only been in the U.S. market for less than a decade, they have barely two dozen stores, and they are only in certain geographic areas. But they are going to expand and once they have worked out the kinks in their business plan, they are going to be serious players on this side of the Atlantic.
Who Is Primark Anyway?
If you know Primark is an Irish company and you go to Ireland looking for their stores, you’re probably saying, WTF. I’ve never seen a single Primark store anywhere in the country. Well, that’s true. In Ireland, the chain is known as Penneys – no connection to America’s JCPenney, but that’s the reason it can’t use that name in the rest of the world.
The first store opened in Dublin in 1969 and today there are 39 stores in the country, all using that Penneys name. But this was not just some nickel-and-Irish-pound operation: the parent company is Associated British Foods, today a $25 billion public company with 133,000 employees operating in some 55 countries that focuses mostly on grocery products and agribusiness. Primark is its only retail business and funding its expansion doesn’t seem to be much of an issue with that kind of a balance sheet.
It opened its first Primark store in the UK in 1974 and now has 191 of them in the country, its largest single market. Spain, the Netherlands, Germany, Portugal, Austria and France followed with dozens of locations throughout the continent. It moved into North America with its first store in Boston in 2015 and has continued to slowly but surely expand out from that base with 25 stores now, still primarily clustered in the Northeast. It recently opened its first locations in the Midwest (Chicagoland), the Southeast (North Carolina and Virginia) and a store in Florida (Orlando) is on the way. Texas and Tennessee are among the new markets in the works for next year. Today it has about 440 stores between Europe and the U.S., on its way to a projected 530 by the end of 2026, including 60 in America. Total revenues stand at about $11 billion with growth at around 17 percent. All-in-all, not too shabby.
Mark its Ways
But Primark is not just another old-line Marks and Spencer-type British Isles chain that operates along conventional lines. It more closely resembles two other European apparel-centric chains, Zara (owned by Inditex) from Spain and H&M (Hennes & Mauritz) of Sweden, both of which jumped on the fast-fashion train and have never jumped off.
All three tightly control their supply chains and are able to ramp up production on hot products at the drop of a euro. But there are differences, Primark stores are much bigger, averaging 50,000 square feet, while most – but not all – locations from the other two brands are smaller, perhaps 10,000 square feet. Think of giant Walmart and Target stores competing against smaller Bradlees, Shopko and Caldor locations: then guess who’s still here?
But there are differences. In terms of aesthetics, Primark stores have a fresh perspective with big, bright attractive interiors, not the typical utilitarian big box boring design. Zara and H&M sell online with fairly well-developed ecommerce businesses. Not Primark. You can search all you want on its website, but you won’t find an “add to shopping bag” button anywhere. It’s a liability as Robin Lewis has written. Online is approaching 15 to 20 percent of all retail sales and Primark is missing out on all of that. But then again, it’s also an asset: no messing around with shipping, consumer-focused distribution centers and – worst of all – returns.
Value Rules
Then there’s Primark’s cost structure. Sure H&M and Zara are known for being lean and running tight ships, but it appears that Primark takes both of those virtues a few steps further. Osum, the online research site, calls Primark’s business plan “strategic brilliance,” with a low-cost corporate culture “deeply ingrained into the company” that might put Sam Walton to shame. Like Mr. Sam, Primark seems to be obsessed with cutting costs out of any and all steps in the supply chain. It says, “We design clothes that offer the latest trend, but we don’t use expensive hangers, tags or labels. We also try to be as efficient as possible when transporting products from factories to stores. This includes things like asking suppliers to pack our T-shirts, so they are ready to go straight onto the shelf.”
It also adheres to an everyday-low-price structure, doesn’t do much in the way of advertising or marketing, and there are no coupons, gimmicks or other pricing tricks. What you see is what you pay for…and what you see is pretty damn cheap. It develops fast-fashion merchandise that, like some others, may not be designed to be handed down through generations, but that kinda misses the point of fast fashion: it’s on-trend.
Jeans for $22, miniskirts for $11, flip-flops for $6 and women’s blazers for $26. Men’s solid-color T-shirts for $4, hoodies for $13 and low-top sneakers for $14. And in home, beach towels for $5.50, hard-shell-style luggage for $35 and wired headphones for $8.
And while most of the product offerings are private label, there is a surprising amount of licensed goods, including characters and properties like Disney, Bridgerton, Shrek and Marvel. Those are not likely to be found at similar fast-fashion competitors and they are not one-offs or close-outs, they are the real deal.
Sustainability? What’s Sustainability?
Still, like others in the fast-fashion space, Primark gets its fair share of negativity about its disposable product model. The company, in its defense, says it has a 100-member Ethical Trade and Environmental Sustainability Team, which sounds impressive even if it’s not exactly clear what they all do. It says as “a member of the Sustainable Apparel Coalition, we committed to Greenpeace’s Detox Campaign in 2014 and are a founding member of the ACT initiative on wages. We’ve also been a member of the Ethical Trading Initiative since 2006 and have achieved the top level ‘leadership’ status since 2011.”
It also recently launched a partnership with a vintage clothing resource (hasn’t everyone?) that could be as much greenwashing as a revenue generator. All worthwhile boxes on its do-good checklist but the fact remains that this season’s hot crop top is next season’s landfill, made all that much easier by the fact that it only cost six bucks. Still, one can argue that Primark and all the others in this race are only giving the consumer what they want. If consumers were truly worried about this stuff, they wouldn’t buy it in the first place, knowing it was an ephemeral purchase that would be cast aside in a few months.
On Your Primark, Get Set, Go
So, if you’re a retailer targeting next gens or a vendor looking for your next Alpha customer, exactly how worried should you be about a company with just 27 stores now and plans that even in two or three years will still be a fraction of the size of the bigger players? Very.
Primark has taken its time since arriving in the U.S. nearly a decade ago to get its American game plan worked out, adjusting what it was doing back home to the ongoing peculiarities of Shopper Americus. Now that it’s going to double in size in the next 30 months one can assume it has worked out the kinks and knows what to do.
If you look at the European retailers that have come into the U.S. it’s the ones who started slowly, learned their way and then ramped up expansion that have been successful. Think Aldi, think Lidl, think Ikea. Think Zara, Mango and H&M. It’s the ones who burst onto the scene like Tesco Fresh & Easy that fell flat on their foreign faces. (And by the way, this street runs both ways: Walmart was a colossal failure when it bought two big discount chains in Germany, and they are still licking their wounds at Target headquarters in Minneapolis over the embarrassingly short collapse of its Canadian expedition.)
ABF doesn’t seem to break out U.S. revenues by business type but assuming that Primark is its main business here, it probably represents most of the $3 billion in annual sales it reported in “the Americas” last year. Do the math: That’s a lot for the limited number (under 20) of stores that operated last year.
H&M, Zara and Ikea probably aren’t losing a lot of sleep over Primark yet. Nor TJX, Ross and Burlington. Not even Walmart and Target, much less Amazon. But you can be sure they are starting to have the more than occasional nightmares. They should be.