Primark’s recipe for success has become its Achilles heel

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By  Dr Emma Gardner
Department of Strategy and International Business, University of Birmingham

 

With over 370 stores in 12 countries, Primark has secured its position as a leading fashion retailer…

Recent years have been tumultuous for the British high street. Numerous firms, such as New Look, Oasis and Warehouse have entered into administration, while others such as Mothercare have shut their doors entirely. Numerous factors contributed to the struggle of these retailers, and continue to present challenges for those who have managed to escape unscathed. These factors include high debt and overheads, as well as a squeeze in consumers’ incomes and the shift to online shopping.

From the outset, one retailer has perhaps emerged as the success story of the high street; Primark. In 2019, Primark opened its largest and new flagship store in Birmingham City Centre. Incorporating three cafes, a barbers, a beauticians, as well as a personalisation station to customise clothing, Primark has embraced the concept of experiential services to differentiate itself from other low-cost fast fashion retailers. These services bring in new customers to the store while also providing Primark with new opportunities for revenue generation from its existing shoppers.

With over 370 stores in 12 countries, Primark has secured its position as a leading fashion retailer, offering capsule collections with the likes of Lotto and Stacey Solomon, while turning over huge amounts of Disney and Harry Potter branded merchandise. However, despite its strong web presence – it has 8.3 million Instagram followers – Primark has not embraced online shopping; while clothing collections are available to browse online, sales must be made in store.

In this way, Primark has been able to carefully manage its overheads; unlike its high street competitors which also offer online shopping, it does not have to shoulder the costs of the technical and distribution infrastructure required to facilitate online shopping. Given that online return rates sit at around 25%, in comparison to store returns of 8%, Primark’s decision to stick to traditional retail outlets is understandable and has seemingly paid off, given that the firm achieved revenues of £7.792 billion in 2019 and enjoys a market share of 7%.

While in ordinary times, Primark had seemingly found the recipe for success, the extraordinary Covid-19 pandemic, which is presenting unprecedented challenges for all retailers, is especially concerning for the firm. With physical stores forced to close, it does not have an online shopping arm to fall back on unlike its competitors. As such, Primark has generated no revenue since its stores shut on 22 March – a sharp decline from its usual £650 million/month. Thankfully, as a result of governmental support, Primark has been able to furlough its staff to cushion some of the impact of Covid-19, but the opportunity costs of the pandemic will be notable.

With no other outlet for its merchandise, Primark’s inventory will be piling up and may no longer be relevant in the world of fast fashion once lockdown eases and customers return to stores. Thus, Primark’s recipe for success has become its Achilles heel. As the world will return to (a new) normal post Covid-19 and consumers will grapple with the resultant economic consequences of the pandemic, low cost Primark may fare better than its high street counterparts; however, it will be interesting to see whether it will embrace online shopping to mitigate risk going forward.


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