LONDON (Reuters) – Confident it could crack the $ 300 billion US Clothing and footwear market where many other foreign retailers have failed, Britain's Primark is poised to raise its stake in the country by securing new sources of fast fashion in Central America.
FILE PHOTO: Company labels products on shelves in new Primark store during its opening day in Berlin, Germany October 18, 2018. REUTERS / Michele Tantussi
Primark, whose trendy clothes at rock bottom prices have taken UK shoppers by storm, opened in Boston in 2015 and now has nine stores in the Northeast, all served by a warehouse in Pennsylvania that could still serve as many as three stores.
It has invested 250 million pounds in the United States, achieved a critical mass of sales and has spent four years training under its belt in a crowded market that is battling to stay afloat in the face of rapid e-commerce growth.
Now its owner, London-listed conglomerate Associated British Foods (ABF.L), is convinced Primark's disciplined store-by-store approach can succeed in a country that has been a graveyard for some of Britain's biggest retailers, including Marks & Spencer, Tesco and most recently Philip Green's Topshop.
“I believe that the U.S. will be a winner for Primark, ”John Bason, AB Foods' finance director, told Reuters.
That confidence is underlined by a move to create a supply chain closer to the U.S. market.
Primark currently sources all of its clothing for the United States from its traditional supplier countries of China, India, Bangladesh, Cambodia, Vietnam and Turkey – a costly exercise as freight is shipped across the Pacific through the Panama Canal and up the U.S eastern seaboard.
The plan is now to tap suppliers from countries in central America, such as Guatemala, Costa Rica and Mexico.
“We are getting to that point now, with the sales level that we have already said in the U.S. already, ”said Bason, a 20-year veteran of AB Foods.
"Certainly countries in Central America I think would really start to come through."
Founded by the late Arthur Ryan in Dublin in 1969, Primark trades from 373 stores in 12 countries, turning over 7.5 billion pounds and making 843 million pounds of profit in its 2017-18 financial year, a near fourfold increase over ten years – all achieved without venturing into online shopping.
Primark, Britain's biggest fashion retailer, has sold its mark on prices, selling T-shirts and swimsuits for as little as five pounds – its customers often laden with its trademark brown paper bags. Those economics make an online offer untenable.
Primark contributes more than half of its parent's total profit, which also owns major sugar and grocery stores and has a stock market value of 18 billion pounds.
Some analysts believe Primark's combination of value, fashionability and breadth of range means it could build a U.S. business over the next decade as big as its one in Europe.
That would threaten the value of fashion retailers like Old Navy, American Eagle and Target on their own turf, and pitch it against Sweden's H&M, which trades from 578 stores in the United States, and Spain's Inditex, which has 102.
Primark's tenth U.S. The store will open at American Dream, New Jersey, this fall, followed by one in Florida in 2020, its first outside the northeast corridor. Contracts have also been exchanged at a Chicago store.
Stores in highly populated cities on the eastern seaboard at locations with high footfall will follow.
Bason said a decision to downsize three Primark stores – Freehold Raceway in New Jersey, Danbury Fair in Connecticut and King of Prussia in Pennsylvania – was critical to fine tuning its U.S. model.
Sales levels were maintained from smaller footprints – sales densities went up, while operating costs went down, which meant improved profitability. Conversely the profitability of the Boston store was raised by increasing its size.
"If you talk about learning, that really was the key, the big one," said Bason.
"You add more stores and each one a profitable store, then your overall profitability will increase … now you are in a virtuous circle."
AB Foods said this month that Primark was delivering strong sales growth in the United States and forecast a significantly reduced operating loss for 2018-19, reflecting the deliberate under utilization of its warehouse.
"At some point … you would then put another warehouse somewhere, strategically located, and start adding stores from that location," said Bason, noting any move into California would require a warehouse west of the Rocky Mountains.
"The thing that goes to the heart of Primark is learning about the individual market – it was always Arthur's mantra."
Reporting by James Davey; Additional reporting by Sonya Dowsett; Editing by Kate Holton and Mark Potter