Primark Stores Limited’s Retail Theory and Practices

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Introduction

Retail sale refers to selling a product or service to an individual customer for their consumption instead of reselling. Retail involves selling small quantities of products to customers based on their demand. Such businesses can be conducted at different sites, for instance, physical shops, online stores, and direct sales. According to Retail Economics (2021), the value of the UK sales has amounted to $403 billion. Major retail business lines include fashion, entertainment, technology, general merchandise, health, and beauty. Fashion retailers are considered the major income contributors in the UK retail industry (Goworek et al., 2018). Although there are 21,861 clothing retail businesses in the UK, IBISWorld (2021) recognizes Primark Stores Limited as the company holding the largest share of the retail market. This report will assess the retail scenario, opportunities, threats, and abilities of Primark Stores Limited, as well as the company’s strategies and tactics to foster its growth and continuity.

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Primark Stores Limited: Company Overview

Primark Stores Limited, a subsidiary of Associated British Foods plc. (ABF), is a global fashion retailer that sells the latest fashion, household, and beauty products at affordable prices. The company was founded in 1969 under the Penneys name, with headquarters in Dublin, Ireland. Currently, it operates in 373 locations across Europe and the United States, with almost have of the stores located in the UK as of 2019 (Primark, 2021). Today, the company is registered both in Wales and England, and its biggest store covers the area of 14,800 square kilometers (Primark, 2021). According to Kraaijenbrink (2019), Primark’s strategy is to realize high sales volumes with a low retail margin per product sold by minimizing procurement costs and exercising substantial cost control at its stores. It deals in a variety of clothing for adults and children and household accessories (Kraaijenbrink, 2019). It is a trusted brand for customers who are interested in fashionable items at moderate prices. Sabanoglu (2020) notes that women’s clothing is the top product category regarding the number of sales. The firm sells its items directly to consumers either through their physical or online stores.

Attention to the fashion industry has allowed the brand to gain many customers’ trust around the world. Famous Italian fashion houses display their wares in Primark’s stores, which proves loyalty to this network (Primark, 2021). A detailed assessment of Primark’s operational characteristics, with an analysis of its macro and microeconomic indicators, can help determine the key strategies for brand success and its approaches to work on a global scale.

Key Changes in the Macro Environment: The PESTLE Framework

To evaluate Primark’s business environment, this report will adopt the PESTLE framework. This algorithm may help analyze the political, economic, social, technological, legal, and environmental issues (Ulubeyli et al., 2019). The scheme is a convenient mechanism to assess all the external factors affecting business specifics. For Primark, such an analysis is a suitable method of evaluating the existing constraints and achievements in its operating environment.

Political

Due to the effects of the outbreak and spread of COVID-19, which resulted in the closure of businesses and other public institutions and subsequent reduction in customers’ purchasing power, there is increased uncertainty of the future. The UK government should formulate measures that aim at supporting businesses and cushioning them from the pandemic’s effects. According to Partington (2019), uncertainty has also been caused by Brexit. Since Britain has left the EU, the fashion industry expects a shortage in imported clothing, most of which were imported across EU member countries (Tobin, 2019). The cost of imported products is also likely to increase after Brexit.

Economic

Prevailing economic situations directly influence the fashion industry. The closure of various businesses and reduction in the buyer’s purchasing power due to the COVID-19 pandemic have caused a decline in the revenue of the clothing industry. Furthermore, this area is highly competitive due to numerous local, online, and international dealers. Due to numerous market participants, Primark’s retail prices are also under pressure. The company is bound to price competition, which is explained by its cost leadership strategy, because Primark sells items at comparatively low prices.

Social

Primark pays attention to the concept of corporate social responsibility to gain credibility globally. For instance, they donate unsold clothes to various customers in the community. The company also considers customers’ interests by selling them valuable items at modest prices. Different fashion events conducted in the UK attract many people worldwide. Some of them stimulate buyers to make purchases in retail companies, such as Primark. However, with the outbreak of coronavirus and subsequent ban of international flights and social events, these activities have been halted.

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Technological

Initially, the cost leadership strategy had deterred Primark from purchasing in e-commerce. With the proliferation and widespread use of the Internet to conduct business activities, Primark may have missed a critical business opportunity to immensely increase its profits. Nevertheless, recently, Primark has launched its online retail store (Primark, 2021). Modern advancements, such as using drones to deliver ordered items, implementing VR technology, and leveraging social media sites are set to revolutionize the retail industry in the UK.

Legal

Since the UK has left the EU, there could be legal consequences for trading with EU member countries and non-member countries operating under EU agreements. Primark is also bound by law to take responsibility for any socially irresponsible activities done. The company also has to observe workers’ rights, child labor law, and environmental conservation regulations. In addition, Primark has to adhere to industrial laws that regulate the sales and profit levels of the fashion retailers.

Environmental

Due to the UK unstable weather conditions, customers are skeptical about spending money on warm clothes during winter and light ones during summer or spring. The fashion industry is one of the significant contributors of greenhouse gas (GHG) emissions through the burning and disposal of cloth waste, and Primark is keen to avert air pollution. Furthermore, customers demand sustainable clothing, and as a response, most of Primark’s items are made of cotton, which is biodegradable. Recycling is also one of the company’s target activities to conserve the environment.

Relevant Changes in the Micro Environment

SWOT Analysis of Primark Stores Limited

Table 1 demonstrates the SWOT analysis model to assess Primark’s financial and business condition in terms of its strengths or weaknesses within the industry and at the industry level based on its opportunities or threats.

Table 1: SWOT Analysis of Primark.

Strengths Weaknesses
  • Effective cost management
  • Efficient utilization of company assets
  • High sales per worker
  • Short inventory turnover duration
  • High earnings per share
  • A large number of customers
  • Preferred by customers seeking inexpensive items
  • Customers not demotivated by socially irresponsible conduct in the company
  • A variety of products
  • Most stores located in high human traffic areas
  • Worldwide stores creating a geographic diversity
  • Low profit for each item sold.
  • Low sales volume per store
  • Limited ways of increasing the absolute purchasing power parity
  • Challenges of fulfilling short-term monetary needs
  • Declining return on capital employed and asset turnover may demotivate potential investors
  • Socially irresponsible conduct may discourage potential investors
  • Sales depend primarily on weather conditions
  • Considerably low-quality products
Opportunities
  • Bulk buying saves on the cost of sales
  • Low gearing presents an opportunity for long-term debt funding of company operations.
  • Further expansion of the business to diverse locations
  • An increasing market share could help strengthen the company’s economies of scale
  • Emphasis on ethical sourcing of clothes
Threats
  • Heavy investments in online retail stores in a bid to increase market share
  • Profitability relies on large sales volumes
  • Compensations in caseworker safety regulations are violated
  • Uncertainty of company future after Brexit
  • Increase in local, online, and international competitors
  • Increasing client indebtedness

Five Force Analysis

Since the microenvironment factors influence business activities directly, Porter’s five forces theory can be applied to assess the criteria that affect Primark’s operations globally. In particular, the indicators of competitive rivalry and buyer’s power may be analyzed, which are essential factors to take into account. These components allow identifying whether Primark faces severe market competition and how its business depends on customers’ interest and preferences.

  • Competitive rivalry. Over the past few years, several local, international and online dealers have ventured into the fashion industry, thus causing cut-throat competition for the market share. The key competitors include Next, M&S, and H&M, among others. To compete effectively for the market, Primark applies a low-cost strategy and stocks a variety of products.
  • Buyer’s power. The low-cost strategy and availability of a wide range of products attract customers’ attention to fashion, thereby bolstering their purchasing power. Big fashion brands, such as M&S, provide high-quality products which drive clients’ preferences to Primark’s competitive disadvantage. Since customers prefer locally manufactured products, it is becoming a challenge for Premark to adjust promptly. However, with the negative influence of COVID-19 and Brexit, buyers’ purchasing power will likely drop due to price disruptions.

Strategies and Tactics

For profitability and growth, Primark applies a variety of business strategies and tactics. In the past few years, the company has achieved higher growth compare to leading fashion brands, such as M&S. The company focuses mainly on widening its market share and growth while observing current marketing and pricing strategies. The PESTLE, SWOT, and Five Force theory analyses have highlighted the key challenges the company faces in its business operations. As a result, Primark has employed some strategies and tactics to counteract the identified problems.

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With the proliferation of online stores, there has been a decline in income from physical stores. Due to this trend, Primark has launched its online retail stores and even supermarkets to augment sales (Ayertey, 2018). Moving most of its business to the online platform has made the company keep minimum stock amounts, saving on storage costs. The online business has been a viable income source during the COVID-19 pandemic when movement and social gathering are restricted. The company has also ventured into social media marketing, whereby they hold campaigns to increase customer awareness of their products and store location. Innovative methods, such as virtual reality and drone delivery, ensure ease of conducting business.

The focus on technological factors is a relevant approach to maintain strong demand and ensure stable sales in the pandemic. As Partington (2019) remarks, sales of many UK clothing brands have dropped due to political fluctuations, in particular, Brexit and the British government’s disagreement with the European Union. Therefore, to avoid losses, one of the potentially effective practices for Primark is to move towards high product differentiation in the online space. Online sales are easier to monitor with out-of-the-box performance evaluation algorithms. In addition, costs are minimized in the areas of logistics and marketing due to the role of media resources in the lives of today’s consumers. As a result, a differentiation strategy is a potentially successful online selling practice in a tense political environment and in-store shopping challenges.

Primark also focuses on obtaining sustainable cotton-based fashion commodities and recycling waste products. The company has started producing organic products which are biodegradable when disposed of and thus harmless. Primark has also concentrated on ameliorating traditional cloth production methods and coloring and incorporating regional and local fashions, including human art and skills. The move will lead to the production of unique products of high quality while positively influencing the environment and community.

Retailers’ approach to environmentalism, as a contemporary practice aimed to enhance production quality to meet the standards of green manufacturing, is a relevant strategy to develop. As Ulubeyli et al. (2019) note, eco-friendly business designs help modern businesses remain resilient through customer loyalty and fewer claims from oversight bodies. In the face of the COVID-19 pandemic, any mitigation actions are valuable opportunities to cut losses and leverage available means to broaden the range of sales. Therefore, pursuing the strategy of environmentalism is a valuable prospect for Primark to avoid losing its market positions.

There is a high level of competition in the UK fashion retail industry. Although Primark is an established brand that dominates most to the market share, it has to be strategic and tactical to maintain the status quo and compete effectively with prominent industry players such as M&S and H&M. The company applies the low-cost strategy to attract more customers who are interested in inexpensive fashion merchandise. The company has a geographical distribution of stores worldwide, ensuring the constant generation of income and an increase in the market share.

To withstand a high level of competition, Primark can implement the conflict theory as a methodology aimed to identify ways and steps to equalize its market position. According to Pantano, Priporas, and Dennis (2018), this concept can help find optimal solutions for the implementation of innovations as tools designed to not only optimize business operations but also maintain positions in the target sector. For the retail industry, such a strategy plays an essential role as an approach that allows assessing competitors’ activities and selecting the appropriate market tactics based on attracting relevant development steps. In addition, in the fashion industry, due to the current constraints caused by the COVID-19 pandemic, individual brands may gain significant advantages by promoting effective business strategies. As a result, Primark may adopt the conflict theory as an approach to increase its chances of being productive in a highly competitive environment.

Recommendations

Although the fashion industry is one of the most significant income-generating sectors in the UK economy, it is bound to experience the changes occurring in the internal and external environments as the world transforms. The sudden outbreak of COVID-19 should also serve as a wake-up call for business owners to always have emergency response plans against such eventualities. Primark should maximize its online presence through social media marketing and e-commerce activities, especially during the pandemic, to capture a broader market and make more sales. They should intensify artificial intelligence techniques, such as virtual reality and drone delivery, in their retail processes.

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When considering Primark’s case, one can pay attention to the company’s active work to overcome competition. The retailer can adopt the conflict theory and the differentiation strategy as approaches to equalize market opportunities and create strong demand from the target audience by expanding online sales. Moreover, given the constraints on logistics aspects, e-commerce is a potentially powerful sales support mechanism. The focus on green manufacturing is highly valuable as a strategy for gaining recognition and the retention of the target audience.

Conclusion

Although the fashion retail industry is one of the most profitable business lines in the UK, competition from established brands is a crucial deterrent. Rivalry is intensified with the availability of substitute products for various low-cost goods among local and international vendors. Primark has the strengths and opportunities to capitalize on to remain dominant in the fashion industry. On the other hand, the company has its weaknesses and threats, including the disruption and uncertainties caused by the COVID-19 outbreak and Brexit. The company can employ contemporary innovative technology such as artificial intelligence and social media to improve their commercial activities. Thus, Primark should develop comprehensive emergency response plans that may assist it in responding to and mitigating the effects of business risks that can arise.

References

Ayertey, S. (2018) An evaluation of online service failures and recovery strategies in the UK fashion industry. PhD Thesis. University of Plymouth.

Goworek, H. et al. (2018) ‘Managing sustainability in the fashion business: challenges in product development for clothing longevity in the UK’, Journal of Business Research, 117, pp. 629-641.

IBISWorld (2021) Clothing retailing in the UK- market research report. Web.

Kraaijenbrink, J. (2019) Why is Primark so successful? The power of alignment. Web.

Pantano, E., Priporas, C. V. and Dennis, C. (2018) ‘A new approach to retailing for successful competition in the new smart scenario’, International Journal of Retail & Distribution Management, 46(3), pp. 264-282.

Partington, R. (2019) UK retailers suffer weaker sales due to Brexit uncertainty. Web.

Primark (2021) About us. Web.

Retail Economics (2021) UK retail stats & facts. Web.

Sabanoglu, T. (2020) Leading retailers’ share of the apparel market in the United Kingdom (UK) in 2008 and 2018. Web.

Tobin, L. (2019) ‘How will Brexit impact the UK fashion industry?’, Evening Standard. Web.

Ulubeyli, S. et al. (2019) ‘Strategic factors affecting green building industry: a macro-environmental analysis using PESTEL framework’, Sakarya University Journal of Science, 23(6), pp. 1042-1055.

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BusinessEssay. "Primark Stores Limited's Retail Theory and Practices." September 20, 2022. https://business-essay.com/primark-stores-limiteds-retail-theory-and-practices/.