Primark’s Strategy, 4 Elements to Consider
If you have been paying attention you will have noticed a trend, a move towards really cheap clothing. You can try to blame it on Shein but maybe Shein got the idea from Primark which has been in business since 1969 and Shein has only been around since 2008. Primark is one of the fastest growing retailers in Europe with plans to have more of a presence in the United States. If you are curious about what is driving Primark’s growth then consider these four elements of its strategy.
1. Rock bottom prices. If you are looking for a new outfit but don’t have a lot of money to spend then Primark is the retailer for you. You can buy a dress at Primark for $11, jeans for $16 and a tank top for $3. With over 60% of Americans living paycheck to paycheck you can see why discount retailers like Primark are doing well especially during a time of record inflation. “There is nobody who is doing what we’re doing around price, quality and value,” said Kevin Tulip, Primark’s U.S. president.
When you look at the retail sector it tends to be the top of the market, luxury retailers and the lower end of the market, discount stores that perform the best. Dollar General plans to open more than 1,000 stores this year and Dollar Tree plans to open as many as 650 stores this year.
You can see where the market is headed when retailers like Shein who also sell clothing at rock bottom prices continue to thrive. Shein was recently valued at $66 billion and is now the largest fast fashion retailer in the United States. It only took Shein aournd 15 years to dethrone other fast fashion retailers in the United States like H&M and Zara. This trend with retailers with ultra low prices succeeding is likely not going away as consumers struggle to make ends meet.
2. No eCommerce. Primark does not offer eCommerce which sounds like a misnomer but there are other successful retailers that do not offer eCommerce. Some of these retailers include Trader Joe’s, Ross Stores and Burlington Stores. And there is a good reason for not offering eCommerce, it’s expensive. When you shift activities consumers used to complete on their own to a retailer, someone has to pay for it. Think about the last time you made a purchase online, say for groceries from Walmart. Walmart picked, packed and delivered that order to you. Even if you paid a delivery fee it is often not enough to cover those expenses.
A study by the Capgemini Institute found that on average retailers charge their customers just 80% of the cost of delivering goods. 97% of those surveyed in the same study said that grocery delivery models are “unsustainable” without finding other avenues to eliminate costs. Not having eCommerce also means that Primark does not have to subsidize the cost of returns and the return rate for clothing bought online is quite high.
Speaking about their decision not to have eCommerce John Bason, finance director of Primark’s parent company Associated British Foods said: "the cost to support home delivery can't be supported with our price points." Primark has maintained this position even though it lost an estimated £1.5 billion ($2.2 billion) in sales due to store closures because of the COVID-19 pandemic.
“Although it lacks a transactional digital offer, we think Primark’s prices act as a barrier to entry versus online competitors, and we see an opportunity for it to accelerate U.S. expansion,” says the Royal Bank of Canada.
Although Primark does not offer home delivery of merchandise in November it began a trial of click and collect in London and North Wales. The trial allows customers to buy children’s merchandise online and pick it up in store for free. Returns made in store are also free. The initiative was so popular Primark’s website crashed after click and collect went live. Primark has found that customers that use click and collect buy additional items when they are in-store to pick up their order. Primark also found that the return rate of items purchased using click and collect was lower than expected. Despite the success of the initiative click and collect Primark has no plans to launch eCommerce.
"There is no reason for Primark to go online. It would dilute earnings and brand and would not increase sales by very much,” said Stephen Springham, partner at Knight Frank. “It is not a gap in its model, which is all about the thrill of the chase treasure hunt as you come into the stores."
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3. Stores at the centre. Unlike some players in the retail sector like Amazon and Shopify who overestimated the share of retail sales that would go to eCommerce, Primark did not waver on its belief that stores would always have an outsized role in retail sales. “We’re really, really steadfast in our strategy of being a brick-and-mortar retailer,” said Tulip.. “Ever since we started in 1969, it’s what we’ve been, it’s what we believe in… I think we’ve always been very clear around digital being a part of that, whether that’s been social media or whether it’s been things like looking at our website. But for us, it’s very, very firm on, we bring customers and we delight them in store. We give them an incredible customer experience. And we continue to get great results from that.”
Primark is planning to open 530 stores worldwide by the end of 2026. “We also have set out an ambitious plan for the US, where we’re targeting 60 stores by the end of 2026,” said Paul Marchant, Primark’s CEO. “We first entered the market with our Boston store in September 2015, and now have a total of [17] US shops.”
“I’m still encouraged by the mass volume and the huge percentages of sales that still go through physical retail, and I’m pretty sure that’s going to continue,” said Tulip. “I fully believe in being very clear on the core of your business and not trying to be everything to everyone, making sure that what you do, you do incredibly well. And a lot of our focus goes into that, which is having amazing fashion at amazing prices… The quality and the value that we offer our customers, that’s where we put a lot of our time and energy into.”
4. Limited advertising. To fuel its low prices Primark conducts limited advertising. “As part of our business model, we do very little advertising, so by expanding our store estate, we will grow both our customer base and our brand recognition,” said Marchant. “Our stores are the face of the Primark brand on the high street.” Instead of having a big ad campaign Primark has trained customers to go into their stores on a frequent basis to see what bargain they can get. There is no need for a lot of advertising because consumers know they will always get extreme value for their money every time they shop at Primark. People do not need to be convinced to shop at Primark, the value speaks for itself.