In a struggling sector, the fashion retailer continues to open new stores successfully and is taking its formula to the US
Customers shop at a Primark store on Oxford Street in London. Photograph: Luke MacGregor/Reuters
Tesco founder Jack Cohen famously said the secret of success was “pile ‘em high and sell ‘em cheap”.
And despite many retailers on the high street struggling to make ends meet – Marks & Spencer shutting stores, House of Fraser striking last-ditch deals with its landlords, Debenhams issuing a profit warning – it seems to be a formula that still works even in a tough environment.
The proof is there at Primark, which has taken Cohen’s philosophy to heart, and has attracted consumers into its stores with its cut-price fashion and makeup. The latest bargain spotted by aficionados is a £2 lipstick that bears comparison with a rival product costing £17.50.
As other retailers mothball sites, Primark continues to successfully open new outlets: last month, there were reportedly 100 people queuing outside its Westfield store in west London on its first day well before the doors opened.
Earlier this year, at its half-year presentation, John Bason, the finance director of Primark’s parent company, Associated British Foods, said: “The UK high street is not remotely dead.”
Not for Primark, anyway. According to GlobalData, it now has around 7% of the British clothing sector, narrowly behind the 7.5% achieved by Marks & Spencer (as a sign of the changing times, M&S had 13.5% in 1997).
On Thursday ABF delivers its latest update, and although analysts anticipate a fairly downbeat start to the spring/summer season, the addition of new stores could see third-quarter sales jump sharply.
Jefferies said: “We estimate total Primark [third-quarter] sales growth of 8% as new space productivity remains very strong, the clearest possible indication of the strong expansion opportunity still available to the format globally.”
However, the business has had to tweak its format for the US,shrinking its store in Freehold, New Jersey, for instance. An analyst visit suggested the change could be successful.
Barclays’s team said: “We have returned from spending time with Primark’s US management, including a visit to the recently ‘right-sized’ Freehold, New Jersey store, as well as the store on Staten Island. We return with increased conviction that the concept is resonating well with the consumer, with Primark offering as differentiated a proposition in the US as it does in the UK and Europe. Moreover, our tour of the Freehold store leads us to believe the smaller format can create the desired store-level density and profitability in lower footfall mall locations to warrant ... further roll-out.
“We continue to believe Primark is well placed to take share profitably in the US market and build a business as big as Europe’s today over the next five-10 years.”
ABF’s other major business, sugar, is expected to continue suffering from price weakness. Fortunately, Primark is there to sweeten the overall result.