Primark enjoys rapid growth despite steadfast refusal to digitise

08 October 2018 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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Four ways digitalisation is transforming car brands and dealers

16 April 2019 Consultancy.uk

From changing expectations from the customer to new stakeholders entering the industry, the digital transformation of global automotive industry means it is facing the wholesale transformation of its business model. In a new white paper, global consulting partnership Cordence Worldwide has highlighted four major digital trends that are transforming the relationships between car brands and dealers with consumers.

With digital transformation drives booming across the industrial spectrum, automotive groups are no different in having commenced large digital transformation programmes to improve productivity, efficiency, and ultimately profitability. Falling sales figures mean the automotive sector is facing an increasingly difficult road ahead, something which means companies in the market are even more hard pressed to find new ways to improve their bottom lines.

While it offers major opportunities, the industry’s move to digitalise is not without complications. It has triggered a series of major internal changes, which have presented automotive entities with the challenge of becoming a “customer-oriented” industry. A new report from Cordence Worldwide – a global management consulting partnership present in more than 20 countries – has explored how automotive companies are navigating the rapidly changing nature of digital business.

New business models

The level of change likely to be wrought on the automotive industry by digitalisation is hard to overstate. Automation could well lead to significant reductions in the number of accidents, higher vehicle utilisation and lower pollution levels, while leading to a $2.1 trillion change in traditional revenues, with up to $4.3 trillion in new revenue openings arising by 2030.

As a result of this colossal opportunity, it is easy to see why almost all automotive groups now have digital departments, with generally strong communication within the digital transformation and the customer approach. The changes to society which this may have are potentially distracting automotive firms from the change it is leading to in its own companies though, according to Cordence’s paper.

The automotive market is dead, long live the mobility market

Because of this, the sector’s business model is set to transform over the coming decades. With digitalisation speeding up the appearance of concepts such as car-sharing, a subscription package model will likely become more palatable. At the same time, car and ride-sharing models will cater to the sustainability criteria of millennials, who will rapidly become one of the automotive market’s leading consumer demographics in the coming years.

Antoine Glutron – a Managing Consultant with Cordence member Oresys, and the report’s author – said of the situation, “These ‘old school industries’ are now working on creating new opportunities, but in so-doing are facing challenges and threats: new jobs, new technologies, new ecosystem of partners, necessary reorganisation, different relationship with customers, and even new businesses. The customer approach topic is in fact a real challenge for car companies as it implies changing their business model and adjusting their mind-set to address the customer 4.0: from product-centric to customer-centric, from car manufacturer to service provider.”

Digital customer experience

In the hyper-competitive age of the internet, even top companies face an uphill challenge when it comes to holding onto customers through brand loyalty. Digital disruption has resulted in changes to consumer behaviour, which is forcing a range of marketing strategists to reconsider their old, possibly out-dated strategies. As modern customers wield an increasingly impressive array of digital tools and online databases, they and are now able to quickly and conveniently compare prices, check availability and read product reviews.

The automotive sector is no exception to this trend, according to the study. In order to adapt to the needs of the so-called ‘customer 4.0’, car companies will increasingly need to change their business model and move away from product-centric companies to customer-centric ones, from car manufacturers to service providers.

Glutron explained, “As an automotive company, you can no longer expect customer loyalty simply with good products; you must conquer and re-conquer a customer that “consumes” your service. The offer now has to be global, digital and personalised. Your offer has to be adapted to this customer’s needs at any given moment. A key issue related to data control is to build customer loyalty by creating a customer experience 'tailored' throughout the cycle of use of the 'car product': purchase, driving, maintenance and trade-in of the vehicle.”

One way in which the sector may be able to benefit from this desire for a tailored experience is via connectivity. Consumers are generally positive about new connective features for automobiles, and many are even willing to pay upfront for infotainment, emergency and maintenance services. Chinese consumers, where the connected car market is set to hit $216 billion, are already particularly interested in paying a little more for navigation and diagnostic features in their future new car. This can also enable automotive companies to exploit a rich vein of customer data, enabling them to rapidly tailor their offerings to consumer behaviour.

New automotive segments

Digital transformation has also brought with it the rise of completely new application areas. As mentioned earlier, the most well-known example is the autonomous or self-driving car, where the last steps forward were not taken by major automotive groups but by technology companies such as Tesla. While this may have given such firms the edge in the market briefly, a number of keystone automotive names will soon be set to take the plunge into the market themselves, leveraging their car manufacturing prowess and huge production capacities to their advantage.

Before companies rush to invest in this market, however, it is worth their while to remember that the readiness and uptake for such vehicles differs greatly geographically. For example, following a study published in 2018, 92% of Chinese would be ready to buy an autonomous car, compared with only around 35% of drivers in France, Germany and US. Meanwhile, the infrastructure of different nations will also be significantly less accommodating of the new technology.

Use digital for steering thr activity

Elsewhere, Cordence’s analysis has suggested that hooking the cars of tomorrow into the Internet of Things is also likely to see a rapid change in the business model for car maintenance, providing real-time diagnostics for problems. This presents chances for partnerships to improve the connectivity of cars, especially with tech companies; for example, PSA partnered with IBM for a global agreement on services in their vehicle. Meanwhile, data could also be sold to other parties with an interest in this data, such as the government, which could use it to manage traffic levels, or ensure that only adequately maintained vehicles take to the road.

Glutron added, “With the increase in the amount of client data and connected opportunities, the recommendation is to set up data-centric approaches. The value is now in the customer data. The general prerequisites are to rework the data model and the Enterprise Architecture and generally build up a data lake including data from all sources (internal and external, structured and unstructured).”

From automotive to mobility

Relating further to the idea of connectivity, the report claimed that automotive firms must now adjust their models in line with the provision of end-to-end mobility, rather than treating the sale of a car as an end point in their relationship with the customer. In order to realise this transformation, transformations are likely to become more and more important.

A network of partner companies means automotive firms can provide a global mobility experience. As the vehicle is increasingly connected to its environment, new partners can also be cities, governments, and other service providers within the global mobility services industry in which the car brands want to take part.

According to the study, the target is clear. Companies must look to a holistic transport service, offering to move customers from A to B in a unique and pleasant way – otherwise they might as well take public transport. At the same time, they should extend the services reachable “on-board” (especially the enhancement of the connectivity between the car and smartphones or other connected devices), and reach high standards in terms of user experience (online sales, online payment, customised experience during and after the use of the car).

Concluding the report, Glutron stated, “These mobility market transformations could be considered a threat for the car manufacturers. Quite the opposite: if they take up the challenge and review their business model so that they become the service provider – communicating no longer to a driver but to a ‘mobility customer’ – they can then take advantage of their expertise and their position as a historical player. The most convenient means of transport are cars, and building a car is highly-skilled work.”