U.K. ‘Cheap Chic’ Chain Prepares to Make an Entrance in U.S.
Primark, Vowing Lower Prices Than Rivals, Will Repurpose Sears Stores
At Primark—like this one on Oxford Street in London—dresses sell for the equivalent of $18, chinos for under $20 and boots go for $25. LUKE MACGREGOR/REUTERS
LONDON—Primark, the U.K. fast-fashion chain that sells T-shirts for a couple of pounds and doesn’t believe in online retailing, wants to make it big in the U.S.
Don’t expect it to play by the rules.
Jokingly nicknamed “Primani” after the expensive Italian fashion house Giorgio Armani, Primark is a long way from being a luxury retailer. Dresses sell for the equivalent of $18, chinos for under $20 and boots go for $25.
Able to respond rapidly to changes in fashion tastes, especially among young shoppers, Primark has built its success on similar foundations to Hennes & Mauritz AB’s H&M chain and Inditex SA ’s Zara. Only Primark does it cheaper. In August, Primark’s clothes were priced 48% below the market average in the U.K., according to research from Bernstein.
Primark signaled its intent to make its mark in the U.S. earlier this year with plans to open on the site of the now-defunct Filene’s Department Store in Boston. It stepped up its U.S. expansion plans Monday by striking a deal with Sears HoldingsCorp. to lease space in seven stores across the Northeast.
It will open its first store by the end of next year and will be operating in all seven within 18 months, according to the company. The Boston store is expected to open in late 2015.
Primark has conducted “extensive research” on the U.S. market, including “very detailed benchmarking of prices” against likely competitors, according to John Bason, chief financial officer of parent company Associated British Foods PLC. Although many of its fashion lines will remain unchanged, Primark will cut back on some items, such as American-college-themed fashion prints popular in Europe.
Its big selling point to America will be price.
“Let me put it this way: The price position of Primark in the U.S. will be every bit as good as it is in Europe,” Mr. Bason said.
The space leased from Sears—520,000 square feet in total—will be operated by Primark autonomously with separate entrances and exits, and not as concessions within existing Sears stores. Among the spaces Primark is leasing from Sears will be a store in the King of Prussia Mall near Philadelphia, considered one of the top malls in the U.S.
Although Primark will initially focus on the Northeast, the company has ambitions to expand throughout the U.S. if the first stores are a success. Mr. Bason wouldn’t give further details on growth plans. Associated British Foods, or ABF, has said previously it expects to open up to 10 stores in its first round of expansion in the U.S.
The main challenge for Primark in the U.S. is that it has almost zero name recognition. The company, which rarely advertises in Europe, says it will overcome the problem by locating in the busiest malls and not as “stand-alone boxes.” It also expects young consumers to spread the word on social media.
Fast-fashion retailer Primark’s ability to charge lower prices is based on rigid control of its supply chain. REUTERS
ABF is a sprawling conglomerate that includes sugar trading, food processing and agriculture businesses. Primark accounts for around 36% of its £13.32 billion ($21.42 billion) in annual revenue.
Since opening its first store in Dublin in the late 1960s, Primark has defined itself by going against the grain.
At a time when most big retailers in the U.S. and Europe are tightening up store space and pouring cash into expanding their online presence, Primark plans to open a series of enormous city-center stores across Europe, adding a further one million square feet over the next year.
Despite selling clothes at bargain-basement prices, Primark invests heavily in its stores. Most are located in prime urban sites and have around 100,000 square feet of selling space, in chic, modern buildings with high ceilings and wide aisles. Some have in-store coffee shops.
‘Primark’s prices are the result of its business model, not cheap labor.’
Emma Palmer, a 21-year-old student shopping in a Primark store on Oxford Street in London, said she spends up to an hour in Primark on each visit.
“Sometimes it’s hard to find, but if you get a good buy here, it feels really good,” she said.
Primark’s ability to charge lower prices is based on rigid control of its supply chain. The company is known for its tough negotiations with its manufacturers, which are based mostly in Asia. Suppliers are often willing to lower their prices for Primark because of the enormous volume the company purchases.
The drive to cut costs in its supply chain has put Primark under fire for relying on cheap labor. The retailer was one of many that made clothes in the Rana Plaza factory in Bangladesh, which collapsed last year, killing more than 1,100 workers. Primark has since paid more than $12 million in compensation to victims and families affected by the disaster.
‘Primark’s prices are the result of its business model, not cheap labor.’
A Primark spokesman said the company shared a large proportion of its suppliers with other retailers and takes “the ethics of its supply chain very seriously.” He added, “Primark’s prices are the result of its business model, not cheap labor.”
At first, Primark will ship garments to the U.S. from its existing suppliers, but it plans to look at establishing links in Central America, Mr. Bason said.
Another reason Primark is able to keep its clothing prices low: It doesn’t have an online store. With low average spending per customer and high return rates, Primark executives say it isn’t viable to offer online or mobile shopping.
Primark operates 278 stores, almost all in Western Europe. It had annual sales of £4.27 billion its most recent financial year, up 22% on the previous year.
ABF has forecast a 17% sales increase at Primark this year and expects to have opened 1.4 million square feet of selling space.
By taking on the U.S., Primark is attempting to succeed where many of the biggest British retailers have failed. Tesco PLC andMarks & Spencer Group PLC have both tried and failed to crack America.
Still, Primark is likely to be encouraged by the recent success of H&M in the U.S., according to Maureen Hinton, global research director at retail analysis firm Conlumino.
“I would be extremely surprised if they didn’t succeed in the U.S.,” she said.
