UK fast-fashion giant Primark, described as the Costco for clothes, is plotting rapid US expansion and wooing shoppers with rock-bottom prices
Business Insider/Mary Hanbury
- Discount clothing chain Primark plans to open nearly 50 stores in the US in the next five years.
- The chain is known for its rock-bottom prices, made possible by keeping business costs down.
- This includes not having an online store and keeping advertising to a minimum.
Belinda Jiao/SOPA Images/LightRocket via Getty Images
The low-cost European clothing chain said Tuesday that it plans to increase its store network to 60 locations in the US in the next five years. It currently has 13 stores there, which are mostly located along the East Coast.
Primark originates from Dublin, Ireland, where the store has a completely different name: Penneys. It first opened in 1969.
Niall Carson/PA Images via Getty Images
When the company expanded to the UK in 1973, it was forced to change its name as the US department store JCPenney was already registered there.
The name Primark was born, and from then on, it was used for any of its stores that opened outside of Ireland.
Between 2006 and 2013, the company grew at a rapid rate, opening stores across Europe - in Spain, the Netherlands, Portugal, Germany, Belgium, Austria, and France. Sales rose by 150% between 2009 and 2014.Wikicommons/1971markus
Source: Primark and The Economist
In 2015, it opened its first US store, in Boston, Massachusetts.AP Photo/Steven Senne
At the time, analysts expected the store to pose a threat to rival US apparel stores such as Gap and Abercrombie, by undercutting them on price and offering a constant turnover of new styles.
A study by Morgan Stanley in 2016, after Primark launched in the US, found that its prices were, on average, 202% lower than average US apparel prices.
The chain continued to expand slowly in the US over the next few years, opening stores along the East Coast.Business Insider/Mary Hanbury
When the pandemic hit Primark found itself in a worse position than many competitors because it doesn't sell online.
Its business dried up overnight as it was forced to shutter stores during the first lockdowns in the US and Europe, costing it £800 million ($1.07 billion) in sales between March 1 and June 20, 2020.
Its adjusted operating profit for the year ending September 2020 fell to £362 million ($484 million) from £969 million ($1.3 billion) in the same period the year before. In its annual results on Tuesday, adjusted operating profit slumped a further 11% from 2020.
Despite this, it has been pressing on with store openings in the US. Most recently, it has opened stores in higher-profile locations, including New Jersey's American Dream Mall and Chicago's top shopping spot, Slate Street.Thomas Pallini/Insider
"With our current portfolio trading really well, it feels like we've established a strong foundation from which to accelerate our expansion in the US market," Paul Marchant, CEO of Primark, said in a statement this week.
The store is known for its rock-bottom prices, which are lower than competitors such as H&M. You can pick up a dress for as little as $4 or pair of high-heels for $10.Business Insider/Mary Hanbury
It does so by running a sleek logistics system, having limited advertising, and buying products in bulk, which enables it to negotiate better prices from suppliers.
In the past, the company has come under fire for its cost-cutting supply-chain tactics and the conditions in which its clothes are made.
In 2013, Primark was highlighted as one of the retailers that made clothes in the Rana Plaza factory in Bangladesh, which collapsed and killed more than 1,100 workers. The company paid $14 million to victims' families and signed an agreement to promote safety at textile factories.
The company relies on the volume of sales to drive profits, as the margins are low on its clothing and accessories.
Business Insider/Mary Hanbury
The typical Primark shopper tends to buy in large quantities because of the store's cheap prices. The baskets at the front of each store are a nod to this shopping habit, enabling customers to pile them up with new items.
"Consumers shop at Primark differently than they shop at a lot of retailers," Bernstein's Jamie Merriman previously told The Economist."It's almost like shopping at a Costco, where you're thinking about it in terms of volume."
Its decision not to operate an e-commerce store also keeps prices down. Customers can view products online but are unable to purchase them there.Primark.com
Primark executives still say it doesn't make economic sense to sell online, despite the events of 2020, because of expensive shipping and returns costs.
"I think that COVID has more demonstrated the strength of Primark than the weakness," George Weston, CEO of its parent company Associated British Foods, told Reuters in November 2020.
"What we've seen with Primark is when people are able to shop they prefer to shop with us than do so online," he said.
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