Primark’s deal to lease retail space from Sears in seven US locations follows a well trodden path. Can it succeed where others have failed?
Having made its intentions known over the summer with plans for a 70,000 sq ft flagship store in Boston, Primark is extending its US presence in a deal with Sears that will allow it to lease over half a million sq ft spread across seven stores over the next 12-18 months. The deal, announced earlier this week, is part of a Primark’s stated aim to open ten stores along the North Eastern seaboard of the US in key locations such as Boston, New York, Philadelphia and Washington. This comes in stark contrast to the seismic shift in fast fashion towards emerging markets, especially China. The deal also reflects a degree of caution from Primark, by leasing established floor space rather than going it alone, but it could open up further opportunities to tie-in with Sears.
Not the only one
It is perhaps unsurprising that as the world of fast fashion embarks on a goldrush East to the emerging markets of China and India, Primark has turned its attention West to the US. Despite a sustained recovery in North America, price sensitivities remain, opening the door for a discounter like Primark. This is counter to the more aspirational consumer preferences towards fast fashion in emerging markets, where Primark would doubtless face much tougher price competition from domestic firms.
Of course Primark is not alone in investing in the US. Fast Retailing, the owner of Uniqlo, recently announced plans to increase US store numbers to 40 by the end of the year and to 200 by 2020. Inditex has 53 US stores, mainly its flagship Zara brand, while H&M has a US presence approaching 300 stores. With the exception of H&M however, these investments are relatively modest compared with those taking place in Asia. Part of the reason for this is that the US market is already mature and highly competitive with the path to American success littered with failures. Most recently this was Tesco’s Fresh & Easy venture but the likes of Sainsbury’s and M&S have also tried and failed to crack the US. Primark may be looking to tap into a more niche appeal, but even here there is staunch competition. Affordable Fast Fashion is already a crowded market. TJX–through TJ Maxx and Marshalls–has nearly 2,000 stores—with Gap’s Old Navy brand approaching 1,000 stores which generate annual sales of US$5.69bn. Ross Dress for Less may be less familiar to European ears but the clothing retailer has almost 1,200 stores in America and achieved sales of US$10.2bn last year. Any expectations that Primark can easily occupy its new niche will be tempered by the challenges the market presents.
Just the beginning?
With that in mind Primark are perhaps understandably cautious in their approach to America. Aside from the Boston flagship, the deal leases out retail space to Primark in established Sears locations. By sharing space with Sears stores, Primark will hope to benefit from existing footfall, while Sears will hope that the presence of Primark in underperforming locations will bring bring in new customers. This isn’t without complications. The property that Primark will be leasing is unwanted by Sears for a reason. In a market where bricks and mortar is continuing to struggle against online channels, making a success of unwanted retail space is a challenge in itself. In addition to this, Primark may find itself competing against Sears in the same space. Sears recently announced its own fast fashion strategy in a bid to drive a turnaround in fortunes, and despite doubts surrounding Sears’ ability to deliver this strategy, it certainly puts the US retailer at odds with Primark. However, Sears provides a ready made footprint in prime locations such as New York. Equally, if the deal is successful, it will provide a springboard for a much deeper tie-in. Sears has almost 800 stores across the US, so the relative convenience of the deal for both firms could be leveraged into a much deeper presence relatively painlessly.
The depth of opportunity in the overall market may be more difficult to ascertain. Only three years ago Gap cut its US store presence by 20%, closing almost 200 stores in the process. As more consumers move online and fast fashion becomes more competitive, key players may need to adapt quickly and decisively. In this sense, Primark’s modest move into the US market over the next two years could end up being too little too late.
- Jon Copestake, Chief Retail Analyst at The Economist Intelligence Unit