Why Primark Is Thriving While Retailers Like Forever 21 Are Closing | WSJ The Economics Of

Summary

Primark, a European fast fashion retailer, thrives without an online presence, focusing on physical stores despite a rise in e-commerce. They avoid the high costs and slim margins of online sales, including returns. With a trial Click and Collect service, Primark maintains a low-cost web presence while encouraging in-store purchases and impulse buys. Their large retail spaces and low-profit margins on a vast array of products keep prices competitive. Despite a slow start in the US, they've adapted and continue to grow, capitalizing on the resurgence of in-store shopping post-pandemic.

Takeaways

• 💡 Primark, a European fast fashion retailer, has chosen to focus exclusively on physical stores and does not sell online.
• 📈 Despite the growth of e-commerce, Primark made 9.5 billion in sales revenue last year without any online sales.
• 🛍️ The company plans to open 60 new stores in the next five years, while many other retailers are closing shops and filing for bankruptcy.
• 🚚 Online retailing involves significant logistical costs, including hubs for dispatching goods and local distribution centers for last-mile delivery.
• 🔄 Returns are a major issue for online retailers, with the cost to process a return averaging $26.50 for every $100 of merchandise.
• 🏬 Primark's strategy is to maintain low profit margins by focusing on in-store sales and avoiding the costs associated with e-commerce.
• 🚫 The COVID-19 pandemic forced the temporary closure of Primark's UK stores, but the company did not pivot to online sales even with a significant drop in revenue.
• 🛒 In 2022, Primark introduced a 'Click and Collect' service, allowing customers to order online and pick up in-store, reducing logistical costs.
• 🛍️ The 'Click and Collect' service also encourages additional in-store purchases, leveraging the concept of shopping momentum.
• 🌍 Primark offers a wide range of products, including clothing, beauty, home, and travel items, to attract customers and increase sales volume.
• 📉 While online shopping peaked during the pandemic, there is a trend of consumers returning to physical stores, which plays to Primark's strengths.

Q & A

Why can't you buy the Primark T-shirt on their website?

Primark does not offer online shopping and focuses exclusively on physical stores.

How much revenue did Primark make last year without online sales?

Primark made 9.5 billion in sales revenue last year without any online sales.

What is the impact of online shopping on retailers' profit margins?

Online shopping adds extra logistical costs and increases the likelihood of returns, which can significantly reduce profit margins.

What is the average cost for a company to process a return for $100 worth of merchandise bought online?

The average cost for processing a return for $100 worth of merchandise bought online is 26.50.

Why did Primark decide not to venture into e-commerce?

Primark believes it cannot make money from e-commerce and has chosen to focus all resources on its physical stores to protect its margins.

How did Primark manage to expand during a time when many retailers were struggling?

Primark plans to expand to 60 stores in the next five years by focusing on its physical store presence and avoiding the costs associated with e-commerce.

What is Primark's trial service called, and how does it work?

Primark's trial service is called Click and Collect. It allows customers to select certain products online and then pick them up in-store.

What is the advantage for Primark when customers pick up their Click and Collect orders in-store?

Customers are likely to browse and make additional purchases while in the store, increasing the potential for extra sales.

How does Primark's in-store shopping model give it an edge over digital-only competitors?

80% of shopping still happens in-store, and Primark's large retail spaces and low-profit margins attract customers looking for bargains.

What challenges did Primark face when it first expanded to the US?

Primark struggled to find the right store density and initially had low foot traffic in US malls compared to the constantly busy areas in the UK.

How did Primark adapt its strategy to succeed in the US market?

Primark learned that a 35,000 square foot store size was optimal for the US market and focused on finding the right store density to support its large format stores.

What is the current trend in retail shopping post-Covid?

Growth in online shopping is slowing as people return to in-store shopping, which aligns with Primark's strategy of focusing on physical stores.