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Home / Business / Primer assesses suppliers in Central America and looks at US price

Primer assesses suppliers in Central America and looks at US price



LONDON (Reuters) – Confident that it could crack the US $ 300 billion clothing and footwear market where many other foreign dealers have failed, Britain's Primark is poised to step up its efforts in the country by securing new sources of fast fashion in Central America.

A sales assistant packing clothes at a Primark store on Oxford Street in London on June 20, 2014. REUTERS / Luke MacGregor

Primark, whose trendy clothing at rock-bottom prices has taken British shoppers by storm, opened in Boston in 2015 and now has nine stores in the northeast, all served by a warehouse in Pennsylvania that can still serve three times as many stores.

It has invested £ 250 million ($ 313 million) in the United States, achieved a critical mass of sales, and has a four-year education under its belt in a crowded market struggling to stay afloat in the face of rapid e-market growth.

Now the owner, London-listed conglomerate Associated British Foods ( ABF.L ), is convinced that Primark's disciplined store-by-store approach can succeed in a country that has been a cemetery for some of the UK's largest retailers, including Marks & Spencer, Tesco and most recently Philip Green & # 39; s Topshop.

"I think the United States will be a winner for Primark," John Bason, AB Foods & CFO, told Reuters.

This confidence is underlined by a move to create a supply chain closer to the US market.

Primark currently sources all clothing to the United States from the traditional supplier countries of China, India, Bangladesh, Cambodia, Vietnam and Turkey – a costly exercise as stock is being transported across the Pacific, through the Panama Canal and up the eastern seaboard of the United States.

The plan now is to drop suppliers from countries in Central America, such as Guatemala, Costa Rica and Mexico.

"We're getting to that point now, with the sales level we've come to in the US already," said Bason, a 20-year veteran of AB Foods.

"Certainly countries in Central America I think would really start to come through."

Founded by the late Arthur Ryan in Dublin in 1969, and trades from 373 stores in 12 countries, earning £ 7.5 billion and made £ 843 million of profits in the 2017-18 fiscal year, a nearly quadruple increase in ten years – all achieved without going into online shopping.

Primark, the UK's largest fashion retailer by number of items sold, has made its mark on price, sold T-shirts and bathing suits for as little as five kilos – customers often loaded with their trademarks, brown paper bags. These economies make an online offer unsustainable.

'VIRTUOUS CIRCLE'

Primark contributes more than half of the total profits to parents, who also own large sugar and grocery arms and have a stock market value of £ 18 billion.

Some analysts believe Primark's combination of value, fashionability and breadth in the assortment means it can build an American business over the next decade as large as it is in Europe.

It would threaten value traders like Old Navy, American Eagle and Target on its own turf, and hit it against Sweden's H&M, which trades from 578 stores in the United States, and Spain's Inditex, which has 102.

Primark's tenth US store opens in American Dream, New Jersey, this fall, followed by one in Florida in 2020, the first off the Northeast Corridor. There are also exchanged contracts in a Chicago store.

Shops in highly populated cities on the eastern seabed in places with high footfall will follow.

Bason said a decision to downsize three Primark stores – Freehold Raceway in New Jersey, Danbury Fair in Connecticut and King of Prussia in Pennsylvania – was crucial in refining its US model.

Sales levels were maintained from smaller footprints – sales density went up, while operating costs went down, which meant profitability improved. Conversely, the profitability of the Boston store increased by increasing its size.

"If you talk about learning, it was really the key, it's the big one," Bason said.

"You add more stores and each one a profitable store, then the overall profitability will increase … now you are in a virtuous circle."

AB Foods said this month that Primark delivered strong sales growth in the US and predicted a significantly reduced operating loss for 2018-19, reflecting the conscious under utilization of the inventory.

"At one point … you would then move another warehouse somewhere, strategically located, and start adding stores from that location," Bason said, noting that some relocation to California would necessitate a warehouse west for the Rocky Mountains.

"What goes to the heart of Primark is learning about the individual market – that was always Arthur's mantra."

Reporting by James Davey; Further reporting from Sonya Dowsett; Editing by Kate Holton and Mark Potter

Our Standards: The Thomson Reuters Trust Principles.

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