IRISH retail phenomenon Penneys, seller of €4 T-shirts or €25 dresses, could be worth close to €36bn, according to an extensive report by investment bank Morgan Stanley.
The Wall Street bank also suggests that Penneys – or Primark as it is known in the UK and Europe – could be worth as much as H&M, which has a market capitalisation of €54bn, within the next 10 years. Penneys is a subsidiary of the FTSE-listed ABF conglomerate, which has interests ranging from sliced bread to cheap bikinis.
"Our new comparison with fast-growing retail peers indicates Primark could be worth £30bn on its own," says the Morgan Stanley document, seen by the Sunday Independent.
There has been increasing speculation in recent months that ABF may seek to spin off Penneys into a separate listed company.
Penneys was set up by Canadian billionaire Galen Weston in June 1969. He moved to Ireland in the mid-1960s, marrying Hilary Frayne, a billboard model from Sandymount. Weston bought the Todd Burns department store business out of bankruptcy, renaming it Penneys and launching it as a discount clothes seller.
The first store opened on Dublin's Mary Street in June 1969. It proved an instant hit with shoppers and four others soon followed around Dublin. Weston later recalled how his wife had helped sew together one of the first dresses ever sold in the shop.
The brand expanded into Northern Ireland two years later, opening a store in Belfast, before launching in the UK in 1974. Penneys was renamed Primark in the UK to avoid potential litigation with US retailer JC Penney.
Primark grew its UK footprint rapidly in the 2000s. In 2005 the firm bought the 119-strong Littlewoods chain for around €494m. It kept 40 of the better-located shops, offloading the rest. In May 2006, the first Primark store outside the UK and Ireland opened in Madrid.
In late 2008, Primark opened its first stores in Holland before cutting the ribbon on new outlets in Portugal, Belgium, Austria and Germany. It now has 268 stores across Europe. Ireland has 38 shops.
The driving force behind the extraordinary success of Penneys was its chief executive Arthur Ryan, son of a Cork-born insurance salesman, who became a tie seller and a clothes buyer for Dunnes. He joined up with the Westons in 1969 and spearheaded the company's transformation of high street clothes buying.
"We forecast Primark to account for 48 per cent of group sales and 62 per cent of group profits by 2018, as we expect the retailer to accelerate its continental Europe expansion and to increase its overall selling space by 83 per cent by 2018," said Morgan Stanley.
"Examining Primark's current performance, selling space and turnover, we estimate that the retailer is now in a growth phase similar to where Inditex and H&M were 10 years ago. In January 2014, Primark operated 268 stores in nine markets.
"This may seem small relative to the network sizes of Inditex and H&M, operating 6,000+ and 3,000+ stores respectively but Primark already generates revenue equivalent to Inditex and H&M in 2004, when these companies both operated more than 1,000 stores in 56 and 20 markets, respectively," the report added.
"We value Primark using a 20-year discounted cash flow assuming growth/investment patterns similar to Inditex and H&M, implying a value of £30bn (€44bn).
Morgan Stanley attributes the success of Penneys to four distinct factors. Supply chain responsiveness has been a key advantage, as Penneys can sell clothes that are right on trend and uber fashionable faster than many of its rivals. Because most of its suppliers are based in Asia, "the locations of the six warehouses allow for next-day delivery throughout the network of stores, which improves the store manager's ability to optimise the store offering in accordance with the latest trends and buying patterns".
This includes an "enhanced customer experience thanks to improved store designs and layout". This has manifested itself through simple changes such as moving the cash tills to the side of stores from the front, which it believes has cut queuing time by 20 per cent.
It also pinpoints "Increasing sales density thanks to selling space optimisation", which has been boosted by innovative new displays.
Morgan Stanley notes that the management structure means store bosses are can learn quickly from mistakes.
"After every season, the store managers prepare a report of lessons learnt from each department, providing feedback on packaging, fastest selling products, popular colours, sizing of the products, predominant trends and potentially on the trends they missed.
"The reports from each store is then analysed by the regional management teams to continuously improve the offering," the report adds.