- Don-Alvin Adegeest |
Despite the usual outrage directed at Primark by fashion journalists, sustainability experts and workers' rights advocates over its fast-fashion-model-cum-cheap-pricing, the truth remains that the value chain is a British success story, both in the U.K. and now also in the U.S.
This week Primark's parent company, Associated British Foods, said in an updated trading announcement the low-cost retailer will open three further stores in the U.S. over the next twelve months, including American Dream in New Jersey, a store in Sawgrass Mills, Florida, and a third store for which the contract is still from fresh from inking on State Street in Chicago.
In numbers, the Primark chain operates over 370 stores across 15.6 million square feet of retail space, a behemoth by most definitions. Yet unlike struggling retailers like Arcadia's Topshop, which recently shuttered its American operations, or even H&M which embarrassingly sits on 4 billion dollars of unsold inventory, Primark is booming.
Primark is booming
Year-to-date sales were 4 percent over last year, driven by expansion and strong like-for-like sales in the U.S. Operating margin in the first half was 11.7 percent ahead of the margin in the same period last year of 9.8 percent, driven by a weaker dollar on contracted purchases, but more importantly due to better buying and tight stock management (H&M take note).
Expansion, of course, is a key part of Primark's long term strategy but the company has done well to choose locations in busy high streets rather than in shopping malls, which have their own retail apocalypse to battle. The chain also downsized some of its stores in 2017 when it needed to improve sales density.
The problem with Primark has never been strategy
The problem with Primark has never been mismanagement or employing a lack of strategy. Its latest flagship in Birmingham attests to this, expanding the store with beauty, food and more services, all of which contribute to Primark outperforming its sector. No, the problem with Primark has always been reputation. It's super cheap prices are controversial as many see it as symbolic of a larger cost to the environment, negative impact on climate change, an uncontrollable supply chain where it doesn't operate its own factories in countries with known ethical and worker's rights issues, etc. Despite signing international accords, holding up codes of conduct and having good intentions, the issues surrounding sustainability, labour and supply chain complexities are not likely to go away.
Nor has the problem been that many of Primark's stores are a real dud to shop in: racks filled with mediocre product of questionable quality, it will never be everyone's cup of tea. But when it comes to value, the company can't be beat. Cleverly the company rarely advertises and can manufacture in bulk, distributing the stock across its portfolio of stores, boosting turnover by selling high volumes and taking a smaller margin than many of its competitors.
Primark is the fastest growing retailer in the U.S.
In the U.S., the birthplace of low-cost retail, Primark took the top spot on a list of 100 of the fastest growing retailers in America by the National Retail Federation's Store magazine, who's data source is the reputable Kantar Consulting. Slow and steady wins the race, which is precisely the strategy Primark is embarking on. When customers shop in its stores, it is rarely to buy one or two items, they are there to shop in volume.
And while the high street is transforming to all things digital, Primark has sensibly eschewed e-commerce so far. It may have the financial health to invest in logistics and warehousing, but it wouldn't be able to keep its prices low if it absorbed expensive shipping and returns costs.
According to Business Insider, Primark sells 8,200 dollars of clothes per square meter, versus H&M which sells 5,250 dollars. That's a lot of clothes per square meter and perhaps the reason why its shopping baskets at the front of its stores are larger than most. And fuller.
Photo credit: Primark website