Primark Eyeing Up USA

Primark has been successful in Europe by offering fast fashion at unbeatable low prices. Their secret is to place huge orders for top-selling items like socks, tops and jeans and passing on the savings to shoppers.

It is hoping to use this formula to crack the $200 billion U.S. market in the coming year. Primark plans to open a store in downtown Boston toward the end of 2015 and have 10 stores in the North East of the country by Easter 2016 and build out from there. This is happening with an initial capital investment just under 200 million pounds.

"We're a volume business. We sell 300 million pairs of socks a year. We sell 150 million T-shirts a year. We don't have major overheads. We have a very efficient supply chain," said Primark's business development director Breege O'Donoghue.

Primark will be competing with  established discount rivals Target and Forever 21 as well as players like Gap, American Eagle and Aeropostale. Although its worked for Topshop chain and the likes there have also been several costly failures moving from the EU to USA, such as Marks & Spencer and Tesco. The challenges of entering the market in America including establishing warehouses and  a new supply chain.

"It's a big if, and that's how investors have got to look at this...it is absolutely a step change, suddenly the population opportunity for Primark has just doubled – if it works. If it doesn’t work then Primark is a western European brand." said John Bason, finance director of Primark's parent Associated British Foods.

While many retailers suffered in the economic downturn Primark thrived. Its profit more than doubled from 233 million pounds in 2007-08 to 514 million pounds in 2012-13, driving a fivefold increase in the share price of its parent, which also has major sugar, agriculture, grocery and ingredients arms.

Primark has taken elements from both Inditex and H&M, which have both been successful in the U.S.. H&M entered the country in 2000 and currently has 318 stores. Inditex entered in 1989 and now trades from 50 stores, 48 of which are Zara stores. Like H&M, Primark keeps prices low by sourcing basic garments from Asia. Like Inditex's Zara, it keeps shoppers coming back for more by constantly adding new styles

Along with large volumes, Primark's success is driven by focusing on a target market of young people, selling a limited range of sizes and keeping all overhead costs down. That extends to having few, if any, customer toilets in its stores, the recycling of the cardboard cartons used to ship clothing into Primark's trademark brown paper bags and the recycling of 23 million coat hangers a year.

Info and quotes from Reuters.

 

 

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