Primark enjoys rapid growth despite steadfast refusal to digitise

08 October 2018 Authored by Consultancy.uk

Since its launch in 1969, Dublin-headquartered Primark has made a name for itself as a keystone high-street player, and the go-to discount fashion provider of choice for millions of shoppers worldwide. As it sets its sights on US expansion, amid bullish sales figures, it has bucked the trend for retailers jumping into the ecommerce arena, having shunned the medium until now.

The benefits of digitalisation and the creation of omni-channel shopping experiences have been extolled in any number of reports in recent years. The convenience and reduced costs of buying online, as well as the proliferation of available digital shopping channels, mean that the online market has grown steadily across the world, accounting for more than 20% of total non-food consumer goods sales in the UK alone.

As a result, a growing number of bricks-and-mortar stores already suffering amid continued uncertainty relating to geopolitics and shrinking demand have thrown themselves into the world of ecommerce in recent months. While theoretically this would give shoppers less of a reason to move away from those brands, the desperate bids to reconnect with migrating customer bases have not always been successful. For example, global teen fashion group Claire’s went bust shortly after a digital transformation programme, despite building a website to supposedly emulate in-store experience, and shore up dwindling sales numbers.

Primark enjoys rapid growth despite steadfast refusal to digitise

While a number of other retailers are similarly still hinging their hopes on ecommerce for their future survival, discount fashion retailer Primark sits at the opposite end of the spectrum. The fastest-growing retailer operating in the US does not actually sell its products online. The website Primark does have is meant purely for browsing items; to make a purchase, customers must make a pilgrimage to one of its physical stores. Not so long ago, this wouldn’t have seemed at all out of the ordinary – but in the so-called age of digital disruption, experts are eternally warning long-term market incumbents that a failure to digitalise can go hand in hand with a sudden, unexpected demise.

Primark has not specifically gone out of its way to hinder potential sales growth, but its business model does not lend itself well to e-commerce, according to company executives. The retailer has even tested out ecommerce practices as early as 2013, when it sold its products directly via British online fashion and cosmetic retailer ASOS' website. While that pilot was anticipated to flourish into a long-term partnership, it promptly ended after 12 weeks, never to be revived.

What the test run had exposed was that because Primark offers some of the lowest prices for clothing available, its profit margins are meagre. Too meagre, in fact, to face online retail, where it would have to absorb shipping and returns costs, or pass them onto the consumer, compromising the store’s business model, and potentially reducing sales anyway.

Indeed, the refusal to get with the times does not seem to have harmed Primark, particularly in its quest for US expansion. Despite the often remarked upon increasingly sedentary lifestyle of US shoppers, according to a report from the National Retail Federation's Stores magazine, which used sales data from Kantar Consulting, Primark is the fastest-growing retailer in America based on year-over-year domestic sales growth. US sales are up 103% year-over-year, after the European-headquartered chain opened nine stores along the East Coast since 2015. Buoyed by these results, it reportedly has more in the pipeline.

Meanwhile, Primark is ahead of its competitors in terms of the volume of clothing sold in each store. H&M sells an annual average of $5,250 worth of clothes per square meter in Britain, while Primark sells approximately $8,200 worth, according to Bernstein data from 2015. While some analysts remain unconvinced by its strategy to steer clear of online sales, Primark is clearly evading some of the large expenses associated with it, while still boosting sales.

In accordance with this, a recent study into retail by consultancy AlixPartners, it is more expensive for brick-and-mortar stores to sell online than in stores on a per-item basis, while items bought online are more likely to be returned. In a store, customers can try clothes on for fit, and to see how they suit them, while internet sales rely heavily on the imagination and estimation of the buyer. Again, this was something cited by Primark as a reason to turn back from its ASOS experiment, and according to Coresight Research, the 30-40% of clothing ordered online which is returned can be six times more expensive compared to in-store.

John Bason, Finance Director of Primark parent company Associated British Foods, recently told The Wall Street Journal, "The cost to support home delivery can't be supported with our price points."

Instead, Primark continues to rely on making its profits from its ‘bread and butter’, of boosting sales volumes through the assumption that low prices will entice customers into spending more. As things stand, it is a tactic that has yielded success, as typical Primark shoppers buy in large quantities.

Related: How a multi-channel digital approach lifted ITV's Love Island success.

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