Why Primark is thriving?

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Happy Hump Day and welcome to the 47th edition of Weekly Olio - your weekly dose of giggles, wisdom, and a sprinkle of intrigue with our tantalizing thought piece (yes, we're talking about Publisher's Parmesan here). 🤭

Today’s Publisher’s Parmesan talks about why Primark is doing well. Unlike other fast fashion brands that rely on online shopping, Primark is focusing on only retail stores to increase its revenue.

Exciting, right? 👏

Will come to that, but let’s first start with the curation.

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The Tweet 🐦

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The Short Read 📝

Deepfakes of Chinese Influencers are live streaming 24×7 - by MIT Technology Review

Using livestreams to sell products is a well established industry in China. It is estimated that between 15 to 20% of all ecommerce sales happen via livestreams. All top shopping platforms offer livestreaming solutions and there is an entire ecosystem around talent management. Top stars can sell millions worth of goods in a single night and enjoy a status reserved for top movie stars. However, with AI, some Chinese companies are threatening to disrupt this.

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Spotify’s $1 Billion Podcast Bet Turns Into a Serial Drama - by The Wall Street Journal

The enticing prospect of podcast riches, with its promise of boundless opportunities in the ever-expanding media landscape, spurred a wave of fervent and ambitious investments in celebrity deals and the creation of captivating original programming. It seemed as though the sky's-the-limit potential of this burgeoning industry knew no bounds.

Spotify invested a lot of money, over $1 Bn, to become a big player in podcasting. They made deals with famous people like Kim Kardashian, the Obamas, and Prince Harry and Meghan Markle. They spent $286 Mn, on fancy podcast studios and set aside a big budget, $250k per episode, for exclusive shows to attract new listeners. However, despite their efforts, many of Spotify's podcasts are not making money. As a result, the company has had to make changes, like laying off staff and adjusting their programming, to reduce their financial losses.

Publisher’s Parmesan 🧀

Why Primark is thriving?

Primark is increasing its revenue by encouraging customers to shop in retail stores as the e-commerce industry booms. Fast fashion companies like Forever 21 have relied on online shopping to help grow, but Primark is taking a different route for expansion.

Let's say you wanted to buy a Primark T-shirt. If you're shopping on Primark's website, you'll quickly discover that you can't. 🤔🤔

Over the past 10 years, e-commerce sales have more than doubled. But last year, European fast fashion retailer Primark made $9.5 Bn in sales revenue without a single penny from online shopping.

Primark has made a very clear choice and the clear choice is bricks and mortar. This comes at an uncertain time for struggling clothing retailers. Retailers like Forever 21, JC Penney, and Neiman Marcus have closed stores and filed for bankruptcy. And while a UBS report shows that up to 80,000 retail stores will close in the next five years, Primark plans to expand to 60 stores in the same timeframe.

So how is Primark expanding without online shopping?

There are not many players, especially in fast fashion that are making fat margins. Pretty much the thinking everywhere is that you have to have this online presence.

But online shopping is actually incredibly expensive for retailers. You have to have a logistical hub from which you would dispatch the goods and then you'd probably have a local distribution centre from which you have to do last-mile delivery.

Each step of that just is an extra layer of cost, it just eats away at the margin which in fashion is very, very slim anyway, but the real killer for e-commerce is somebody who buys something on the internet is far more likely to return that product than somebody who goes into a store.

Returns are one of the biggest profit losses for online retailers. On average, processing a return for $100 worth of merchandise bought online costs a company $26.50. For years, online retailers just ate these expenses. Only now are more of them deciding to pass the cost back to the consumer.

Primark has just stayed right from the beginning, it doesn't think it can make money out of e-commerce. It is not even gonna try, rather will focus all its resources on the physical store and protect the margins.

E-commerce was a lifeline for a lot of retailers during the pandemic. They couldn't open their stores, but they were still able to make some sales on the internet. But Primark didn't budge, even as consumers urged for it to offer online shopping and even after its revenue dropped by almost 2 Bn pounds.

Click and Collect

Instead of traditional online shopping, in 2022, Primark launched a trial service called, Click and Collect in select UK stores. Customers can select certain products online, and then pick up their orders in-store.

So Primark still has some costs to maintain its website but it's cheaper than running a true online shop. So Primark makes a sale, but they don't have any of the logistical costs that would be involved in packing it up and then shipping it out to your home.

And there's another bonus for Primark. Since the customer has to go inside to collect their purchase, they're likely to browse around and maybe even buy more. They make the sale online, but then they have a good chance of making some extra sales when that person visits them. Consumer psychologists call this shopping momentum. Essentially, once you've already decided to make a purchase, it's easier to justify adding more to your cart.

It always feels overwhelmingly busy with people who are in there looking for bargains. And it's not just clothing. Primark lures consumers with beauty, home, and travel products similar to a department store.

What people like to say about Primark in the US is that it’s all treasure without the hunt. Customers may go in for a new T-shirt and leave with a suitcase. To carry this vast selection of items, Primark finds large retail spaces because it relies on selling a lot. It's one of the largest retailers in the UK by volume and one of the largest across all of Europe.

Pricing Strategy

Last year, Primark made about $9.5 Bn in sales revenue in part by selling a lot of things at low-profit margins. And it does this by sourcing a lot of its clothing from Asia. Combined with not offering online shopping, this enables Primark to sell its merchandise at lower prices, even lower than many other fast fashion retailers.

U.S. Expansion

Primark opened its first US store in Boston back in 2015. Although it was already popular in the UK, its US expansion started slowly. Over four years, it opened nine stores. After years of experimentation, Primark learned it would have to change to succeed in the US.

When it first opened, it took a similar store size that it would've had in Europe. But when Primark opened its stores across the northeast, it struggled to find the right store density. What they found in the US is that retail is so much more competitive. There's a lot more retail in downtown areas in the US than there is in the UK, for example. So you just can't support a massive store. It's just not possible to get enough revenue for the size.

To support its large store sizes, it needed a lot of foot traffic. But unlike the UK stores which were located in constantly busy areas, US stores were mostly in malls where during the week, foot traffic dwindled.

Primark learned that actually, 35,000 square feet of retail selling space is actually the sweet spot for them. They didn't face the commercial pressure that a publicly owned company might have faced to suddenly open 100 stores and get really big really quickly and then possibly risk disaster because they hadn't thought it through.

The culture of Primark has always been to take our time and to test and learn. And they've done that in every country where they've introduced the brand. This wasn't about growing market share at all costs.

And the overall retail market is shifting. Online shopping hit a peak during COVID-19, but now, growth is beginning to slow as people return to stores. And we think that's never been so important as it is since we came out of Covid. We think there has been a massive rediscovery of being in malls, being together, physical shopping, and Primark as a business took the decision a long time ago.

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