Is Primark the Next Big Thing?
Over the past 15 years or so, fast-fashion has evolved from a trend to a phenomenon to an industry standard, one that has largely redefined the U.S. apparel retailing landscape.
From home-grown Forever 21 to Swedish import H&M, the market is awash in stores offering cheap, on-trend clothes at low prices. Most recently another import entered the mix, Primark, which opened its first U.S. store in September, in Boston, the first of eight announced locations.
The company, owned by Associated British Foods, traces its roots back to Dublin, where it was founded in 1969 and operates stores under the Penneys banner. Primark has come a long way since then, evolving into a global player, with over 290 stores throughout Europe, and more on the way.
Primark’s mix of stylish fashions and accessories for the entire family (with a strong depth of assortment), a daily replenishment strategy that fuel traffic, and bargain prices (with prices 40% below H&M and 20% below Forever 21, according to research firm Sanford C. Bernstein) have resonated with shoppers. The company brought in some $7.5 billion in sale in 2015. It is ranked number six in global retail market share in sales of clothing and footwear, behind H&M, Zara, TJ Maxx, Ross and Uniqlo, but already ahead of Gap, according to global strategy and management consulting firm A.T. Kearney.[quote-from-article]
But nothing underscores Primark’s international ambitions more than its decision to set up shop in the United States, a market that has been mostly unwelcoming to British merchants.
In Europe, Primark enjoys a loyal following. Its store openings are epic events, with lines around the building. The merchant inspires what has come to be called “Primania” among its most devoted fans. The question is whether Primark fever will make its way across the Atlantic, to a country where the company will have to build brand recognition from the ground up.[pb]
“In the same way that Primark has been able to quickly grab share in European markets — first in the United Kingdom, then in Spain, German and so on — in a relatively short time period, it has a good chance to pull it off in the U.S. market as well,” said Adheer Bahulkar, a partner in A.T. Kearney. “If Primark can continue to out-price its fast fashion competitors, aggressively manage costs and churn out trend-right merchandise that consumers will fight over for – watch out.”
Indeed, Primark is considered an expert at running a high-volume, low-cost operation. Its retail strategy, for example, eschews expensive Times Square-type locations, Bahulkar noted. It chose to enter the United States primarily through a lease arrangement with Sears Holdings whereby it will open freestanding stores in existing Sears locations in malls on the East Coast. Its second U.S. location, an 80,700-sq.-ft. store in King of Prussia Mall, King of Prussia, Pennsylvania, is due to open at press time. The company, which operates five distribution centers in Europe, has opened a distribution center in Bethlehem, Pa., (operated by logistics company Exel), that will serve as the foundation for its planned Northeast expansion.
NO ONLINE: Perhaps nothing reflects Primark’s focus on aggressive cost management than its resistance — to date at least — not to sell online. (Its web site is mostly a look book for its new collections and also has some brand messaging.) The retailer, whose strength is quick turnover of styles, has said that selling online would not be cost effective given its low, low prices.
While some experts think Primark is foolhardy, others say that for a volume business like Primark, moving online may not make sense.
“Consider the economics: In the U.S., a retailer will incur at least $3, probably $5 to $7, just to fulfill an ecommerce order,” Bahulkar said. “When your average selling price is under $10, it is very difficult to pass those shipping costs to the customer. Free shipping obviously would immediately eat into thin margins.”[pb]
Even leveraging Amazon’s fulfillment platform (FBA – fulfillment by Amazon), he added, retailers would expect to pay at least $1 to $2 for the costs.
“Primark could get into ecommerce — and figure out ways to cost effectively manage its margins — but unless the consumers demand it, why should it? And the consumers — at least so far — have shown no signs of stopping (their stores),” Bahulkar noted.
LOW PRICES: Cost management aside, the real secret to Primark’s success is very basic: It sells really cheap clothes.
“It’s old news that consumers are flooding to stores that sell cheap and, to an extent, disposable, fast fashion merchandise,” Bahulkar said. “But in the high stakes wager for grabbing share of this insatiable consumer, Primark is saying to its fast fashion rivals, ‘I’ll see your deeply discounted merchandise play and I’ll raise it.’”
How cheap is cheap? Craig R. Johnson, president, Customer Growth Partners, and his team, have been making detailed weekly store checks at Primark in Boston since the store (whose neighbors include Macy’s, H&M and TJ Maxx) opened. By his account, average selling prices typically start at $3 and go no higher than $50, with an average in $9 to $11 range.
Opening price points in most of the various categories (such as denim, tops, graphic Ts) maintain an advantage of 10% to 25% below key competitors, notably Walmart, Forever 21 and Old Navy.
Primark entered Boston with zero brand recognition. But it hasn’t had a problem building store traffic.
“Our weekly store checks since the opening have showed extensive traffic,” Johnson said. “Raw traffic counts far exceeded those of Macy’s — and across a wider demographic — although a portion of the crowds included curiosity shoppers and perhaps the competition. Traffic counts in October after the opening excitement stabilized still showed transaction velocities over twice that of M.”
Primark is off to a great start, according to Johnson.
“I think that Primark, both in Boston, King of Prussia, and rest of the initial tranche of stores, will be a huge success in the U.S. market,” he said. Over time, and based on our initial observations, the Boston store may well generate an annualized $100 million a year, and if the store can handle the crowds and throughput with mobile checkout devices, it will be positioned to exceed that level at maturity.”
That does not mean all Primark stores will come in so high.
“Stores at malls such as King of Prussia and Danbury Fair Mall do not have the weekday traffic levels that a central business district and mass transit location such as Downtown Crossing enjoys,” Johnson advised.
As to competition, Johnson believes that, while it is still very early in Primark’s