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Five things Primark is doing right to avoid same fate as Debenhams and House of Fraser

With the launch of its Birmingham megastore, Primark is giving customers a shopping experience –a trend Liberum analyst Robert Waldschmidt thinks other retailers will follow to improve footfall
Primark
Primark is “giving shoppers what they want”, says Liberum's Robert Waldschmidt

The high street may be in trouble but Primark continues to thrive.

The hype surrounding the grand opening of the world’s biggest Primark in Birmingham on Thursday confirmed that the value fashion retailer has managed to avoid the same struggles endured by its sector peers.    

READ: AB Foods expects Primark’s first-half profit to be “well ahead” of last year

Many shoppers camped outside the 160,100sq ft megastore for hours before it was opened.

The store has five floors and features a barber shop, a beauty studio, three restaurants and two cafes, including one that is Disney-themed.

Primark, which is owned by Associated British Foods plc (LON:ABF), continues to expand in an age when other bricks and mortar retailers are closing stores.

According to figures published on Wednesday by Local Data Company and PwC, a net 2,481 stores vanished from the UK’s busiest high streets in 2018.

Among those to close stores in the UK are Debenhams – the department store chain that entered administration this week – and rival House of Fraser, which was rescued by Sports Direct International PLC (LON:SPD) last year. 

With high street stores evaporating at a rapid rate, Primark’s success begs the question – what has it done right that others have done wrong?

Setting trends and keeping prices low

The simple answer, according to Liberum analyst Robert Waldschmidt, is that the company is “giving shoppers what they want”.

Waldschmidt said Primark offers cheap prices, keeps trends fresh by frequently rolling out new clothing ranges and gives store managers an opportunity to tailor their shelves with products that  are most popular in their local area. 

Creating a shopping experience 

With the launch of the Birmingham megastore, Primark is now giving customers a “shopping experience”, a trend that Waldschmidt expects other retailers will follow to improve footfall.  

“The whole idea is to create dwell time,” he said, adding that it is a “way of driving more gross profit to the till”.

“You need to give shoppers a reason to be there, there needs to be an experiential traffic driving reason to be in the area.”

Addressing ethical concerns

Waldschmidt also thinks Primark has done well to address concerns about ethical trade and environmental issues related to so-called “fast fashion” practices.

He noted that Primark carries out thousands of audits on manufacturing each year, makes sure it adheres to the Modern Slavery Act and child labour rules, has introduced the use of sustainable cotton in clothing, limits the use of plastic in stores and offers recycling bins for clothing.

Staying offline

Another reason Primark has not suffered at the hands of a high street downturn could be that is yet to move the business online, Waldschmidt said.

“I don’t know from a consumers point of view if it’s a good thing but from a financial standpoint they would lose money if had a pure direct to home online offer,” he said.

“You’d be selling the same stuff in store potentially at a price that would be uneconomical given the returns model that we have."

READ: Why it makes no business sense for Primark to move online

By staying offline, Primark saves itself the hassle and the money involved in deliveries, meaning it can keep prices low.

George Weston, the chief executive of Associated British Foods, once pointed out: “As you can imagine, the margins are so small that it can be difficult to sell a £3 t-shirt when you’re spending the same amount just to ship it.”

Online-only fashion retailer ASOS plc (LON:ASC) proved that point in its first-half results on Wednesday, reporting an 87% drop in pre-tax profit, largely due to distribution and warehouse costs.

But considering click and collect 

While Primark has so far refused to launch an online delivery business, it is exploring a click and collect offering.

Waldschmidt said once Primark figures out the complexities involved in setting up click and collect, he thinks “they’ll go for it” but it will be “an incremental bolt on”.

“They are never going to sell their whole range on click and collect, it’ll be select ranges, it will be incremental,” he said.

Either way, Waldschmidt thinks Primark has a "bright future". 

As for the rest of the retail sector, he expects companies to adjust to the digital age and sees more local neighbourhood stores replacing big chains.

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