It's hardly a scene you'd expect in recession-plagued Britain, where a sharp downturn in consumer spending has hit retailers hard. But on a midweek afternoon, the flagship London store of apparel giant
is mobbed with shoppers. Even with 64 cash registers open, the lines of customers snake deep into the clothing racks, while a fire marshal in a yellow vest directs impatient buyers to the next checkout.
The secret of Primark's huge success? Ultralow prices for fashionable, fast-moving merchandise. That formula has helped the Dublin-based retailer grow through the downturn, at a time when shoppers are looking for deals such as a spring jacket for $14 or a trendy pair of jeans for just $12. "Everything [at Primark] is dirt cheap," says Jeanette Williams, a shopper at the Oxford Street store. "I usually think I'll spend $20 or $30, but I end up spending $100, like I did today."
Now, Primark is spreading its footprint across Europe. In May, it opened its first stores in Portugal and Germany, and it is slated to open five more outlets in Britain and Spain this year. Like-for-like sales (in stores open more than 12 months) grew 4% last year amid a tough retail environment, and
, the chairman of Primark's parent company, Associated British Foods, remains bullish on its potential. "Expansion is continuing in the U.K., Ireland, and on the Continent, where the results of the Spanish stores have been very encouraging," he said in a statement.
Of course, opening outlets while the rest of the retail world is downsizing is risky. But Primark has honed its business model into a science. The company says it can bring catwalk fashions to its customers within six weeks of a trend's debut. To keep prices low, it sources a majority of its merchandise from Asia. Everything is shipped to one of its two distribution centers in Britain and then moved to domestic and overseas shops.
Primark's cost-consciousness stretches further than the sales floor. To keep overhead to a minimum, its headquarters in Ireland are far from fancy. And instead of spending millions on celebrity endorsements and advertising, it relies on shoppers with big bags and big savings to pass on the message.
ABF's Retail Track Record
One curiosity that sets Primark apart from other fast-fashion purveyors such as Zara ( (ITX.F)
) and the Gap ( (GPS)
) is that parent company Associated British Foods' ( (ABF.L)
) other businesses run from sugar and groceries to agriculture. What does a company that sells Twinings tea, Ovaltine, and animal feed know about apparel? A fair amount, actually. ABF has been in retail for four decades, having originally launched a chain called Penney's—no relationship to America's J.C. Penney—in 1969 in Ireland, where it still operates under that name. The store was renamed Primark when it opened in Britain, but it didn't cross the Channel until 2006, when the first Primark stores opened in Spain.
Selling household accessories and clothing aimed primarily at babies, kids, and adults under 35 has proved to be a winner for Primark. The chain has now overtaken cut-price heavyweights such as the Asda unit of Wal-Mart ( (WMT)
), which offers cheap apparel under its George brand, and British supermarket giant Tesco ( (TSCO.L)
According to retail consultancy Verdict Research, Primark commands 17.7% market share in cheap apparel, vs. 16.9% for Asda and 11.2% for Tesco.
Associated British Foods is controlled by Canada's wealthy Weston family, which holds a 54% stake in the company, as well as interests in upscale retail operations in Canada and Ireland. (The Westons also acquired Britain's
in 2003.) But with 189 stores, Primark is ABF's most lucrative business: In 2008, it logged revenues of $3 billion and profits of $371 million, out of ABF's total $13 billion in revenue and $1 billion in profits.
Time to Tweak a Winning Formula?
Many attribute Primark's success to its chairman and managing director,
, who has been at the helm since the chain's 1969 launch. He considers the company's cost-consciousness as his personal ethos and cuts overhead in every way he can, even keeping business travel to a minimum. ABF employees describe him as someone who is hands-on and behind the scenes, visiting stores every day and insisting that he approve every item that gets marked down. "He's an extremely energetic, hands-on individual who likes to spend a lot of his day on the shop floor, watching what is being sold and talking to staff about the customer environment," says an ABF spokesman.
Primark's European expansion has gone well so far, thanks to the company's cautious and careful approach to opening stores and its ability to offer low prices with a middle-market look. "A lot of [its success] is probably down to the ability to closely identify demand in a very fickle market," says Jeremy Batstone-Carr, a researcher at broker Charles Stanley ( (CAY.L)
Primark may need to break a few of its own rules, though. Analysts say the business is experiencing pressure as it expands. Its operating profit margin fell from 12.5% to 12.1% last year, suggesting among other things that shipping all the merchandise through Britain before redistributing it elsewhere in Europe may prove too costly. Batstone-Carr says to maintain low operating costs Primark will have to reconsider that model as it pushes further into Europe. And while Primark is well known in Britain, it is likely the chain will likely need to boost its marketing as it enters uncharted territory, which could further squeeze margins.
Still, some analysts argue that the current recession may bring about permanent changes in consumer behavior, marking the end of a 10-year run of high consumption levels. If that proves true, Primark could be well placed to compete for bargain-hunters. "People's perception of value has changed in the recession and that is going to have an overhang post-recession," says Martin Digby, a senior executive at consultancy Accenture ( (ACN)
). Just ask the folks lined up 20-deep at the Primark checkouts.