Primark wants more out of digital, and validity for its fast-fashion model, so our Prospect analysts have examined some of the steps it is taking to secure ongoing growth as sustainability climbs up the consumer agenda and the cost-of-living crisis continues to bite. 

Primark’s decision to turn its back on ecommerce was exposed as a strategic flaw in 2020 when the pandemic hit. 

Without a digital business to fall back on, sales were decimated when the retailer lost a quarter of its trading days in 2019/20 and then a third more in 2020/21 due to lockdown measures across all its main markets.

 

But with sales now back at pre-pandemic levels, and after outperforming all of the online giants over Christmas 2022, Primark has invested in a new strategic advisory board, headed up by former ABF finance boss John Bason.

Here are five areas the new board leader will be prioritising when he picks up the reins in April:

Fully exploiting its value offer

Primark has demonstrated the importance and power of offering the right product at the right price, and its value positioning means it will do well in the current climate as UK consumers in particular continue to tighten their belts.

At the end of 2022, research by domain registration site Fasthosts showed that search interest for Primark was up 58% year on year, while a host of other fashion retailers, including Next, Asos and Boohoo, had seen search interest dropping back. 

And following stellar peak trading, with sales climbing 18% to £3.15bn in the 16 weeks to January 7, including 11% like-for-like growth, management said its market share of UK clothing, footwear and accessories rose half a percentage point to 7% for the 12 weeks to December 11.

 

Management will be keen to fully exploit this trend but they have acknowledged there will be some sacrifice to the bottom line. 

While Primark increased some prices in 2022 as costs soared, it pledged towards the end of the year that there would be no increases beyond those already in place or planned, “to stand by our customers, rather than set pricing against highly volatile input costs and exchange rates”.

As it absorbs inflation in areas ranging from labour costs to raw materials, and higher purchasing costs on the back of the strength of the dollar, Primark’s operating margin will fall below 8% during the current financial year, down from 9.8% last year.

But the retailer is confident that its stance supports a “core proposition of everyday affordability and price leadership” and will enable “market share growth over the longer term” when it envisages returning to an adjusted operating profit margin of around 10%. 

Making digital work

Primark is the only major fashion retailer in the UK without a fully transactional website. Management has long maintained that its business model – low prices and relatively low average transaction values – prohibited a move into selling online.

It pulled out of an initial online trial with Asos nearly 10 years ago, determining that “the best way to get profitable growth [was] on the high street” and channelling investment into physical retail space. The trial had allowed Primark to test the online waters, but it remained reluctant to dive in until it was severely hampered by its lack of online presence during the pandemic. 

The retailer’s long-awaited digital launch in 2022 was always going to come under the spotlight and it hasn’t been the unmitigated success that management might have been hoping for. 

A redesigned, customer-facing website, giving shoppers access to stock information by store, and paving the way for a move into click and collect, was launched in the UK in April of 2022. However, Primark missed its December target for rolling the new site out globally. This has now shifted to the end of the first half of 2023.

Christmas tree outside Primark

Primark’s newly launched click-and-collect offer hit headlines in the run-up to Christmas as the website crashed

Meanwhile, the click-and-collect launch hit the headlines for all the wrong reasons in the run-up to Christmas, with the website crashing over the first few days after hordes of customers flocked to the site following the launch in just 25 stores. Customers also criticised the decision to launch only across kids’ products. 

The glitches have shown, though, that Primark has been right to pursue its online foray in its typically cautious manner, with the retailer clearly requiring more time to invest in tech infrastructure before rolling the service out across its various country store networks – should it choose to do so. 

Speaking to Retail Week in January, Bason said it was time to rethink accepted wisdom about the growth trajectory for online retailing, believing it to be “mature”. 

As such, Bason suggested using digital engagement to capture customer data, instead of pushing for online transactions, would avoid incremental costs for both Primark and its value-focused customer base.

Focusing on US and international stores

The launch of the click-and-collect offer means Primark’s extensive store network remains at the heart of the business, but the focus for growth is very much on international markets.

New store development has slowed in the relatively mature UK market, as well as some of its more established European markets, for instance Germany – where it is currently reviewing its estate following weaker-than-expected trading last year. It will shutter at least two German stores this year, while others could be downsized. 

Conversely, major growth opportunities have been identified in France, Italy and Spain, it’s also increasingly focussed on expansion in Eastern Europe.

The retailer entered its third Eastern European market – Czechia – in 2021, opening a 46,000 sq ft store in Prague. This year will take it into Romania for the first time, with two stores lined up in Bucharest, while it will also extend its presence in Slovenia. 

However, it’s the lucrative US market where Primark’s expansion strategy is really being ramped up in 2023. 

In typical Primark style, the retailer has been planning its US expansion meticulously since it first opened in Boston in 2015 and has learned many lessons in the process. 

 

With no shortage of UK retailers having had their fingers burned through ill-fated moves into the region, Primark has expanded cautiously, with 13 stores up and running by the end of 2020/21. At this point, the retailer said it was still fine-tuning store size to take account of US demand patterns and had reduced the size of three of its original openings to optimise efficiency. 

Following robust trading across the country in 2021/22, the retailer says it is planning on “nearly doubling retail selling space in this important growth market in the coming year”. 

Primark US boss Kevin Tulip’s aggressive store opening programme kicked off with 10 planned openings across 2022/23, with three new stores in New York opening before Christmas 2022, a move he described as “kicking off its growth plan” for up to 60 Primark locations across the US by 2026. 

Primark US President Kevin Tulip

Primark US boss Kevin Tulip’s aggressive store expansion plan could see the retailer nearly double its selling space across the country

Innovative new partnerships and licensing agreements

Primark was quick to spot the potential for collaborations and, despite its value credentials, has become a market leader in the licensing space through partnerships with the likes of Disney, Warner Brothers and Netflix. 

Management says the retailer’s partnerships with popular global brands, from PlayStation to the NBA, are becoming increasingly important to the business from a strategic perspective as licensed ranges are “an effective way to drive online engagement, create enticing physical environments in our stores and help Primark’s growth in new markets such as the US”. 

Expect more innovative new partnerships along the lines of its collaboration with Greggs last year as Primark looks to gain coverage on social and drive interest across its stores. 

Its in-store ‘Tasty by Greggs’ cafés, with their doughnut-inspired seating areas and sausage roll swings, have been hailed as the most ‘Instagrammable’ Greggs in the world, while hoodies from the initial clothing collaboration are still being listed on eBay at inflated prices.

Tasty by Greggs OSE 6

Primark’s in-store Tasty by Greggs cafés have been hailed as ‘Instagrammable’

Convincing customers globally that Primark cares

While fast fashion and sustainability clearly don’t go hand in hand, Primark is trying to change the narrative. 

Having come under scrutiny for its ethical credentials in the past, the retailer has also taken a much more proactive stance in this area of late, for instance through the appointment of a dedicated ethical trade and environmental sustainability director and increasing its oversight of the supply chain. 

Towards the end of 2021, the retailer unveiled a wide-reaching Primark Cares sustainability strategy aimed at minimising fashion waste, reducing its impact on the planet and improving the lives of the people who make Primark clothes. 

Building on the progress the retailer has made over the past decade to become a more ethical and sustainable business, the new commitments include making all of its clothes recyclable by design by 2027, ensuring all clothes are made from 100% recycled fibres or more sustainably sourced material by 2030 and halving emissions across its entire chain by 2030. 

Recent initiatives like repair workshops and a partnership with the Vintage Wholesale Company for the sale of second-hand clothes underline the retailer’s willingness to embrace sustainability.

Its click-and-collect trial is also being run as sustainably as possible, with packaging kept to a minimum and paper wrap bands being used in preference to plastic “wherever possible”.

But despite these efforts, a business model based on manufacturing huge amounts of cheap clothing essentially contradicts most of the values of ethical fashion.

In a world where sustainability is increasingly front of mind for the consumer, Bason and his team will need to continue to step up efforts in this space if it is to keep up with consumer demands and expectations.