Omni-channel, Schmomni-channel0 Comment
Want to buy Primark? You Better Live in Boston.
I recently visited the website of Primark for the first time. Primark is the latest international retailer to enter the U.S. market, with one location in Boston open now and another seven announced for the northeast corridor. Known for fast fashion at prices lower than its competitor, I was excited to get in on the goodness.
An analysis by Sanford Bernstein found that U.S. Primark prices are 40 percent lower than H&M and 20 percent lower than Forever 21.
I clicked into the “Products” page and found a Grey Split Festival Jacket. A steal at $15. I clicked to add the item to my favorites list. I found a nice Gray Lined Zip Hood Jacket ($35) and a 2-Pack Blue Stripy Cozy Socks ($3.50.) I was pumped! But when it came time to purchase my list of goodies, I found that I couldn’t. There is no way to purchase Primark goods online. If I want Primark, I’ll have to print out my list and take it to the store. For me, that’s about a thousand miles away.
A European Success Story
Primark has proven to be an especially successful model in Europe. A subsidiary of Associated British Foods, the retailer operates nearly 300 stores across 10 European countries. Its stores offer apparel, accessories and home goods at rock bottom everyday low prices. Its big and bright stores are located on European high streets and draw huge crowds. Two flagships on London’s Oxford Street, which are a mile apart. While the company has seen recent slowing in same-store-sales growth, it’s still a huge success. Primark sales grew from £ one billion to £ five billion in the past decade, and added nearly one million square feet to its portfolio in the past year.
You Are the Last Mile
Primark is fashion done fast and furious. At internet speed, with styles changing weekly. But in the age of Omnichannel, the one retailer that seems to have captured the internet-fueled zeitgeist more than most, does not sell its goods online. Primark’s prices are so low and its margins are so thin, that it has as yet to find a profitable way to do so. Primark employs a handful of centralized warehouses. It makes its money by selling low prices at high volumes. Primark has solved the problem of the high-cost of home delivery is by forgoing the last mile altogether.
Primark Needs Foot Traffic
Primark has virtually no name recognition in this country and does not spend much on advertising, so the retailer will need to open stores in high-traffic areas where shoppers will already be shopping. The former Filene’s location in downtown Boston, Primark’s first U.S. store, is an iconic spot with high volumes of daytime worker and tourist foot traffic. The next logical step for Primark would be a Midtown Manhattan spot, but as of yet no lease has been secured. For now, Primark plans to make a splash by opening big in multiple northeast super-regional malls. In order to do that, Primark turned to an unlikely entity: Sears Holdings.
Primark will be moving into more than half a million square feet of former Sears real estate during the next year. Primark will open its second location at the King of Prussia mall in November, just in time for holiday shopping. Another six stores will be coming to super regional malls in New York, New Jersey, Pennsylvania and Connecticut.
Sears Tries New Tricks, Primark May Prevail with Old Ones
While discount and luxury retailers have continued to thrive, once-strong middle-cost classics like Sears are struggling. Sears saw comparable store sales drop another 14 percent in the second quarter of 2015.
Sears’ stated turnaround strategy is to reduce the number and size of stores and focus on its stronger categories such as appliances. It plans to attract the modern multi-channel consumer by offering online purchasing and in-store pickups and returns. Old dog Sears is trying to recapture its youth through new technology tricks, while young upstart Primark, having taken on half a million of Sears’ square feet, may be on track to conquer U.S. fast fashion while avoiding e-commerce altogether.
Primark’s success in Europe and potentially in America would prove that an omni-channel strategy is not the right approach for every retailer. If all things were equal, the multichannel retailer would reach more consumers and prevail. But if a retailer can offer exceptional style and huge value in sacrifice of e-commerce, convenience might not matter so much. The truth is that all things are rarely equal.
Sears Trades in Space
While Sears attempts to pull off a huge retail turnaround, it will pay for that strategy by trading in some pretty good real estate. Sears recently spun off much of its real estate assets into a REIT called Seritage, earning $2.7 billion in the process. New retailers that have taken over former Sears space include Dick’s Sporting Goods, Nordstrom Rack, Corner Bakery, Aldi, West Elm, Whole Foods and Forever 21. Sears still owns 425 of its properties.
James D. Cook
Director of Retail Research, JLL
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