Thursday 23 February 2017

Primark needs more than low prices to win over US consumers - report

John Mulligan

John Mulligan

In Europe, Dublin-headquartered Primark draws its main customer base from the 18-44 age group
In Europe, Dublin-headquartered Primark draws its main customer base from the 18-44 age group

Low prices won't be enough to ensure the success of Primark in the United States, as the clothing chain prepares for its debut there in September, a new report by US retail consultancy firm Robin Lewis warned.

The report, commissioned by Davy Stockbrokers, says that store experience and merchandise will also be critical in appealing to young US consumers.

Primark, headquartered in Dublin and owned by UK firm Associated British Foods, is hoping to replicate is success in Europe by targeting the United States.

It's initially focusing on the north-east of the country.

Its first, and flagship store, will open in Boston. Primark began its expansion into mainland Europe in 2006 with a store in Madrid.

Since then, it has opened stores in countries including Germany, France, Portugal, Austria and the Netherlands, with significant scope remaining for further outlets.

"The US retail apparel market is variously described as oversupplied and über-competitive, although this will not be news to Primark," noted Davy.

"While this may invite some scepticism regarding the likelihood of success, its history of overseas development in what are highly competitive and well-developed (fashion) markets suggests that it strategises entry to new markets very well."

The report prepared for Davy noted that while everyday pricing has run its course in the US clothing retail market, Primark is about more than low prices. It's also about the store experience and product breadth, it noted.

Davy said that Primark retains the scope to sustain double-digit revenue growth over the next decade, supported by space growth, conservative like-for-like assumptions, and higher sales densities on the newer store footprint.

Last month, HSBC pointed out that Primark's profits have increased 13-fold since 2000, to a forecast £693m (€965m) in the 2015 financial year.

HSBC predicted that Primark's entry into the US could herald a much faster roll-out of space than has been seen in mainland Europe.

Primark, whose chief executive is Paul Marchant, will open about eight stores in the US over the next 12 months.

But the report warned that despite the growth prospects for the chain in the US, it could be adversely impacted by its lack of a e-commerce site.

"Primark's lack of an e-commerce site could be an obstacle to growth in the US market," according to the report.

"Millennials, the first generation to grow up in the digital age, expect to be able to shop when, how and where they want, including online. They want omni-channel, which is offered by all of Primark's major US competitors."

It added: "The pricing strategy with which Primark has found success in Europe might present problems for the retailer in the US. In our view, everyday low pricing in the US retail clothing sector is, for all intents and purposes, an outdated and no longer effective model."

The report suggests that American consumers have been "trained" to buy items on sale and that they generally wait for a percentage reduction sale before shopping.

It also said that while Primark may have purposely targeted its first US stores in areas where there are a high proportion of people who describe themselves as Irish-American, it will need to be careful that it embraces other cultures.

"This strategy should be thought through carefully, however, so as not to alienate the large and rapidly-growing population of millennials of other ethnicities such as African-Americans and Hispanics," it said.

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