Primark’s rocketing sales may come down to earth

Budget clothing retailer Primark has grown strongly in recent years with its combination of trendy fashion at bargain prices. But some observers are questioning whether it can keep up the momentum.

Last week, Primark’s parent company Associated British Foods announced that in the six months to March 3, Primark’s sales increased to 721m compared with 530m in the same period the previous year. Profits rose from 71m fto 91m.

The sales increase was largely due to the opening of 23 new stores, taking the total to about 160. The opening of its flagship outlet in London’s Oxford Street caused a stir and was accompanied by a prominent police presence and a consumer riot.

Encouraging trading
However ABF revealed that overall like-for-like sales were flat. It says this is inevitable when opening so many new stores – they lure shoppers away from existing outlets. But the company adds: “Our estimate for like-for-like sales growth in stores unaffected by new openings is 6%. Trading in new stores has been encouraging.”

Some observers are impressed by the chain’s performance. Futurebrand deputy managing director and head of strategy Jasmine Montgomery believes that Primark has done well given that it operates in a challenging category. “It’s hard to sell cheap fashion but Primark has carved itself a low-cost niche and retains its fashion credentials,” she says.

This has been done on the back of minimum marketing, focusing on local press for store openings and general word-of mouth. In 2005, it spent only 195,219 on advertising, with the bulk of it on outdoor hoardings, according to Mintel International Group.

Meanwhile Mike Godliman, senior retail consultant and director of Pragma Consulting, thinks its success is down to rock-bottom prices and leading fashion trends. “It is not a niche brand and appeals to all segments of the market,” he says.

This does not necessarily mean that other high-street brands such as Topshop and H&M should feel threatened. Montgomery believes that they will see decreased sales but only in the short-term. She says: “Fashion consumers are highly promiscuous and aren’t afraid to mix and match. In fact Primark’s success might give other brands like Topshop the perfect opportunity to reposition themselves.”

Achievable objective
Another issue is whether Primark will be able to maintain the momentum of its success. Montgomery deems this an achievable objective as long as Primark continues to lead the charge for disposable fashion items and strengthens its personality as a brand.

Not all observers though view its future so optimistically. Although Mintel director of retail research Richard Perks agrees that Primark’s success has been astounding, he doubts whether its triumph will be long-lived.

Also he wonders whether it has shot itself in the foot by over-expanding. “There have been one or two warning noises and it would be easy to overstate Primark,” he says. “I thought that the last like-for-like results were disappointing and could have been a lot better.”

Furthermore there is the possibility of a consumer backlash against cheap fashion. Perks says that British shoppers are not obsessed with low prices and that Christmas showed a trend for people “trading up” to buy superior goods.

Add to that increasing concerns over eco fashion and ethical trading, and people may also begin to question just how it is that Primark is able to charge such low prices.

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