Primark’s value proposition sets the pricing bar so low that it will be almost impossible for competitors to crawl under it. And, they’ve set the experience and trendy merchandise bar so high, relative to their pricing, that competitors will find it an enormous challenge to simply match it, much less beat it. They own this space.
After visiting the first U.S. Primark store in Boston’s Downtown Crossing last week, I was blown away. The pre-launch buzz in the U.S., citing Primark’s explosive success across Ireland, the UK and the Eurozone, was all about its impossibly low prices, “fast fashion-cycled” trendy merchandise, albeit (commensurate with pricing) of lesser quality, and a fun, tech augmented shopping experience. While this value proposition is not strategically unique, Primark’s execution of it is. It’s like the Goldilocks recipe of getting it “just right.” In fact, the combination is so right that consumers’ perception of the value they are getting, for prices they find unbelievable, is well…unbelievable, and potentially unbeatable. It certainly electrified a nerve among Europe’s Millennial consumers to such a degree that the Primark’s value message went viral (with almost nothing spent on advertising), resulting in Primark’s expansion to more than 300 stores across Ireland, the UK, Spain, the Netherlands, Portugal, Germany, Belgium, Austria and France. Roughly a third of those stores were opened in the Eurozone between 2006 and 2014, during which time revenue and operating income more than tripled, while sales per-square-foot increased by 45 percent to $800, (more than twice those of H&M, discounters and off-price stores in the U.S.). In 2014 they racked up sales of $8 billion, a figure that is expected to rise 13 percent to $9 billion when fiscal year financials are reported on November 2, 2015.
Primark, the Dubin-based division of the UK company Associated British Foods Group, has increased its share of its parent company’s profits from 33 percent to 57 percent over the last two fiscal years.
Sensing they had stepped into a field of four-leaf clovers, Primark’s chiefs in Dublin must have said, “why not the U.S.?” And so here they are, with seven more locations planned to open in the Northeast over the next year: in suburban malls in Burlington, MA; Braintree, MA; Danbury, CT; Staten Island, NY; Freehold, NJ; Willow Grove, PA; and King of Prussia, PA.
Blown Away
Back to Boston. The grand Beaux Arts building that used to house Filene’s Department Store and its famous Filene’s Basement has been renovated and transformed into a 77,000-square foot, architectural manifestation of the kind of awesome shopping experience young (and young in attitude) consumers will go out of their way to visit repeatedly. Comfortable lounge areas and smartphone charging stations are on each of the store’s four floors. LED screens are peppered throughout, streaming cool video messages and lifestyle action scenes — there’s a flat screen TV showing ESPN in the men’s area. The dressing rooms are spacious. Sophisticated looking mannequins (there are over 500) smartly display the latest fashions in all of the apparel areas. Funky commentary can be seen on many of the walls, as well as bright neon lit signage. The whole layout is modern, crisp and energetic, with great lighting and easy sight lines, awash in vibrantly colored merchandise, including men’s, women’s and children’s apparel and footwear, accessories, women’s lingerie, home goods, and unexpected gift and impulse items.
So make a note of this first of the four important elements of Primark’s value proposition: an upscale in-store experience. Strategically, the experience focuses on Millennials, but more significantly is the fact that anybody who enters that store would perceive they are in an up-market shopping experience as opposed to an off-price or outlet experience. This perception adds value to everything in the store, which makes Primark’s incredulously low prices an even more unbelievable deal. The term “great value” immediately usurps “cheap.”
And speaking of prices, the second important element is a pricing strategy that protects Primark with a huge and impenetrable wall that competitors will find near impossible to breach. Before one even enters the store, the window displays feature colorful and trend-right looking goods, with signage trumpeting $7 skinny jeans, a $4.50 sports bra, high-end branded sneaker knock-offs for $11, a sweater for $8, or 100% cotton bath towels for $10. The most expensive item in the store is a $60 jacket. And once in the store, there is the same clear and bold price signage with no indication of what it has been marked down from, with the exception of the slow-moving goods whose prices are slashed on a daily basis by Primark’s 35 category managers.
Primark’s pricing model is a challenge to the belief that EDLP does not work in the U.S. “Seeing is believing” comes to mind, as I believe Primark may prove the pundits wrong. Anecdotally, one comparison shopper in the Boston store said that apparel and shoes are about 40 percent cheaper than at TJ Maxx and Marshall’s.
The third and fourth critical parts of Primark’s value proposition are the level of quality and trendy positioning of the goods, and the rapid infusion of new product into the store on a daily basis (fast fashion). The quality of the merchandise may be just a level above disposable, but its trendiness for Millennial and the other budget-conscious consumers Primark is after more than makes up for the lower quality. Furthermore, Primark has a sophisticated back-office operation, including store ordering and sales systems, distribution and logistics infrastructure, design, sourcing and inventory management that matches the best of the fast fashion players, delivering a truckload of new merchandise on a daily basis from their 677 thousand square-foot distribution center in Pennsylvania. Once a style is seen on the runway it takes as little as eight weeks from initial design concept to appearance in store.
Unique and Unbeatable Value Proposition
Think of Primark’s model as having set the pricing bar so low that it will be almost impossible for competitors to crawl under it. The Primark brand position was based on this pricing model out of the starting gate. It’s part of the brand’s DNA in the eyes of the consumer, indelibly linked to the level of quality, trendiness and shopping experience. They own this space. Though some might say this position may just be temporary, I say Primark’s value proposition is unique and they may own it forever. My reasoning is that even if competitors, including off-price and discount retailers as well as H&M, Forever 21, Uniqlo, Zara and others, were able to reconfigure their financial models and profitably produce and price their goods to match Primark, their brand integrity and credibility as perceived by their consumers would collapse. Those competitors of Primark have spent years and billions of dollars establishing the differentiated positioning of their brands, including the level of quality. Simply, consumers would not be able to understand a sudden change in that positioning. And, It’s unlikely that those competitors would be able to simply slash their pricing to the level of Primark with their current financial and merchandising structure without sacrificing operating margins and alienating investors.
A Competitive Disadvantage
One competitive disadvantage Primark has is that it does not sell its goods online. Its financial model does not include investing in e-commerce or traditional marketing. Given the brand’s growth and success in Europe without these two strategies, Primark believes this model will work equally as well in the U.S. This e-commerce decision is bound to be proven wrong. Since Primark has indicated that these initial openings in the U.S. will be a learning experience, they may come to understand that operating online and off in the U.S. is not only a necessity, but a great opportunity, achieving a much larger return on whatever their investment might be.
U.S. consumers increasingly demand the ability to shop when, where and how they want – whether it’s at home at 3 AM, in a store, or on the run on their mobile phone. For this reason, U.S. retailers are under tremendous pressure to become omnichannel merchants, with ecommerce brands opening stores and brick-and-mortar brands launching e-commerce sites. In addition to just adding sales channels, retailers also have to add extra services, which are quickly becoming standard offerings, including free shipping and in-store pickup.
For Primark’s core consumer target, the Millennials, numerous studies have found that they prefer to shop as much as possible online. H&M, after almost a decade in the country, finally launched a U.S. e-commerce site last year. Forever 21 did the same. These apparel powerhouses realized the importance of e-commerce justified the significant investment for their Millennial targets. Convenience and saving time are extremely important to this group. Furthermore, e-commerce can capture sales from the consumers throughout the country who don’t yet have a Primark store near them. So we believe Primark will find that its lack of e-commerce puts it at a distinct competitive disadvantage in the U.S.
Welcome to the United States
However, at the end of the day, whether it’s the luck of the Irish in a field of 4-leaf clovers or not, Primark’s brilliant execution of a unique value proposition has been powerfully launched into the most competitively over-congested marketplace in the world. The U.S. is over-stored to a level at which growth can only be achieved by stealing share of market from competitors. And while in my opinion, Primark is well positioned to do just that, the existing major players will not relinquish one penny without a battle, in what I have coined as “share wars.”
The U.S. may be the land of (enormous) opportunity, but in retail-land it’s also an enormous challenge. May the luck of the Irish be with you, Primark.
