How Primark Thrives in the Downturn

The fast-fashion retailer keeps expenses low—and prices at rock bottom—by holding down overhead and outsourcing manufacturing

By Saleha Mohsin

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 Primark Stores 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."

European Expansion

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 Martin Adamson, 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).

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