The report on Primark provides an evaluation of the fast-fashion retailer. The report assesses the steps taken by Primark to grow into one of the largest fashion-retailers in Europe. It analyses the company’s internal environment by looking at the management of staff and the supply chain activities. It also uses Porter’s Five Forces analysis to evaluate the attractiveness of the fast-fashion industry and identify the strategic positioning of Primark.
Competitive advantage exists when a firm can offer products to customers at a lower cost than competitors or with greater and unique benefits. Porter identified cost leadership, product differentiation, and a focus strategy as the three primary ways of achieving competitive advantage (Tanwar 2013, p.11). The report also identifies the basis by which Primark has built a sustainable competitive advantage.
Background of Primark
Primark is an Irish fast-fashion retailer operating in ten European countries, and the U.S. Primark started with one store in Dublin in 1969, and it has grown to be a large European clothing retailer with 345 stores and close to 73,000 employees. The company offers a wide variety of kids, men, and women clothing products as well as beauty products and accessories (Associated British Foods Plc.
The success of Primark is attributable to the low prices it offers and the stocking the latest fashion trends. The company prides itself in its ability to offer “amazing fashion, amazing prices”. By investing in large brick and mortar stores located in Europe’s high streets and shopping centres (Associated British Foods Annual Report 2017, p.42), Primark attracts a large number of value-seeking customers.
Internal Analysis of Primark
Cost Leadership
Primark is primarily a budget clothing retailer, and its unique selling point is to offer the latest fashion at rock-bottom prices. Primark pursues a cost-leadership strategy, and this has helped the company become one of Europe’s largest fashion retailers. Johnson et al. (2017, p.211) identify the four essential elements of a cost-leadership strategy as low input costs, economies of scale, experience, and efficient product design.
Primark lowers its input costs by contracting manufacturers and suppliers located in countries with low labour costs, for instance, in Asia. The company enjoys economies of scale by purchasing the most popular fashion designs and sizes in bulk (The Economist, 2015). Also, by establishing large retail outlets, Primark ensures that it can stock a large number of diverse products to encourage volume purchases by the customers. The company’s fashion designs are simple (but the latest and trendy) enabling it to save on expensive features such as packaging labels and hangers (Primark.com, 2018). The company has also gained experience in identifying the key fashion trends in a particular season (for instance, winter and summer), and this ensures that it keeps up with the changes in customer tastes and preferences.
Primark also incurs low marketing costs since it does not carry out a lot of advertising on mediums such as TV and billboards (Primark.com, 2018). The company relies on social media sites such as Instagram and Facebook, its website, and the highly effective word-of-mouth referrals. The huge social media is essential in generating a viral following of Primark’s products (Wyner, 2014), and this allows the company to pull the customers to the stores, eliminating the need to offer online shopping services.
The primary consumers are the millennials (16 to 24 years old) and the aged (35 to 65 years), and both categories are in need of quality, trendy and value-for-money fashion. By minimising costs in its supply chain and operations, Primark can offer quality and up-to-the-minute fashion designs at prices lower than its competitors (Wang, Lin, and Chu 2011, p.100).
Therefore, Primark’s value proposition is to offer the millennial and the older value-seeking customers with quality, up-to-the-minute fashion designs at low prices. The key distinctive activities by the company are developing designs that are easy to manufacture and transport, stocking a diverse range of latest designs (up-to-the-minute), and using retail stores to encourage impulse and volume purchases. Also, the company locates its stores in the high streets and shopping centres and encourages customers to do their self-selection and delivery.
Supply chain Management
Lean supply chain operations ensure that Primark keeps its overheads low, and it translates these savings into rock bottom prices for the customers. Primark has developed an effective logistics system that enables the company to buy in bulk, and it can benefit from the economies of scale. The bulk purchases also allow the company to minimise the transport costs from the supplier’s factory and its stores. Other strategies to lower costs include asking the suppliers to package the products in the factories using a single wrap, for instance, a single package for all the t-shirts rather than individually wrapping each t-shirt.
Primark integrated inbound logistics bring together all its global suppliers, and this facilitates the distribution of the products to the various stores. As pointed out, the company minimises material handling costs by requiring the supplier to use a single wrap for similar cloth categories. Also, by providing simple fashion designs, Primark can minimise the use of expensive labels, tags, and hangers. The company does not offer online shopping services, and as a result, it does not incur the outbound logistics costs of shipping and transport the products to the customer's homes.
By integrating its supply chain with the suppliers and the customer’s in the store, Primark has built a responsive supply chain that allows it to reduce costs and maintain product quality (Sukati et al. 2012, p.3). Also, it facilitates effective inventory management that ensures the firm can replenish the in-demand products as well as reduce inventory levels during the low sales periods.
Human resources management
The goal of Primark’s human resource management is to recruit, manage, train, and develop its employees to ensure that they offer excellent customer service. The company does not employ a lot of staff in its retail stores, and as a result, it employs low-cost employees to perform activities such as cleaning and product displays. The company also has an employee code of conduct where each employee (particularly the suppliers) are required to follow. Primark is also committed to providing education and training to its staff, especially in the factories and the aim is to improve skills such as sewing and material handling.
However, the company’s human management resource actions have come under severe criticism after the collapse of a factory in Bangladesh. The company has faced accusations of unethical sourcing of its products since it exploits the workers in the low wage countries (Hendriksz, 2018). It is only after the Bangladesh disaster that Primark showed its commitment to improving the working standards of these low-cost employees.
Another criticism is the fact that by encouraging self-selection by the customer, the company understaffs its retail stores and some customers have a hard time seeking for clarification. The understaffing causes some stores to suffer from long ques and poor merchandise displays and visual. As a result, Primark in-store environment is not conducive due to the lack of a consistent offering regarding the window displays and product visuals.
External Environment Analysis
The threat of new entrants is low. The industry incumbents enjoy economies of scale from their vast retail stores, vast distribution networks, established brand identities, and entrenched customer loyalty (Porter 2008, p.27). A new entrant would require considerable financial resources to develop retail stores, build an efficient supply chain, and increase the awareness of its brand. A firm such as Primark has developed a manufacturing network of over 1000 suppliers, and it would be difficult for an entrant to secure such manufacturing abilities. Also, a new entrant would expect an aggressive retaliatory response from the current players as they try to defend their market position, for instance, by lowering prices even farther. Therefore, the huge capital requirements and economies of scale are considerable entry barriers for a new entrant.
The bargaining power of suppliers is low. Primark deals with many suppliers, and none of them is big enough to demand higher prices or threaten forward integration. Also, most of these suppliers depend heavily on the fashion industry players for their revenues, and as a result, they will seek to protect the industry by charging reasonable prices and adhering to the strict codes of conduct (The Economist, 2015).
The bargaining power of buyers is high; the fast fashion industry has to deal with powerful buyers. The customers are price sensitive and value-seeking, and they demand quality products at low prices. There are a large number of fashion retailers, and most buyers face low switching costs, making it easy for them to play competitors on price. With the huge retail stores, Primark has a high-fixed-cost structure, and it might be forced to lower prices to increases the sales volume.
The rivalry among the existing competitors is high. Many competitors are committed to gaining market share, and as a result, they seek to differentiate themselves on their prices and product offering. Most fashion retailers sell almost similar products for kids, men, and women and they will seek to cut prices to win and retain new customers. As pointed out earlier, Primark has a high-fixed-cost structure, and it earns low margins, and as a result, it has to cut prices to increase the sales volume. In such a situation, the industry players seek to differentiate themselves on a basis such as product features (quality, latest fashion) and brand image.
The threat of substitutes is moderate. Substitutes come from within the fashion industry itself, for instance, luxury products, e-commerce only platforms, and fashion from other countries. Some of these fast-fashion retailers offer low prices and higher quality goods, and since the switching costs are low, buyers are open to experimenting with fashion from other countries and diverse origins. According to Porter (2008, p.31), such substitutes put a ceiling on prices limit the profit potential of the industry.
Recommendations and Conclusion
Primark has been reluctant to venture into online shopping because it seeks to avoid the additional costs of warehousing, delivery, and product returns. However, according to Mintel’s Online Fashion Report (2017), online fashion sales account for 24%of the UK’s total clothing spending, and the market is projected to grow by 79% by the year 2022. Therefore, Primark has to incorporate online selling in its operations, even though the company will not offer delivery services. In this situation, the management should develop a transactional website that allows customers to order products in store and then collect later (click and collect service). The company can also introduce product bundling to encourage multiple purchases of related products. Through the website, the firm can also offer a minimum spending option where it offers discounts above a certain amount. By offering multiple channels by which consumers can browse and buy products, Primark benefits by extending its global reach, increasing its brand awareness, attracting a larger number of customers to its website, and remain competitive against its rivals.
It is also essential for Primark to improve its in-store environment by developing a consistent in-store offering. The company should seek to improve the environment by ensuring that all stores have the same product displays and visuals (make the stores visually stimulating). Also, the management should train the staff on improving customer service, and this leads to a seamless shopping experience. For a fashion store, excellent customer service, positive shopping experience, and good product displays and visuals ensure that the customers can access products easily, receive help readily, and enjoy the entire experience while in-store.
In conclusion, the key behind Primark’s success is its commitment to offering low prices and a diverse range of up-to-date designs. The fashion industry has high entry to barriers, has powerful buyers, and intense rivalry among the rivals. To maintain and improve its market position, Primark should enhance its transactional website and improve the in-store environment by enhancing customer service and product displays and visuals.
References
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Mintel Online Fasion Uk (2017). Brits hung up on online fashion: Online sales of clothing, fashion accessories and footwear grow by 17% in 2017. Fashion. [online] Mintel. Available at: http://www.mintel.com/press-centre/fashion/uk-online-sales-of-clothing-fashion-accessories-and-footwear-grow-by-17-in-2017
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