Primark Strategy and Future Strategies to Ensure Survival in Tough Market - Case Study Example

Running Header: PRIMARK STRATEGIC ANALYSES AND DIRECTION Primark Strategic Analyses and Future Strategies to Ensure Survival in Tough Market Affiliation Abstract When looking at a specific company within the fashion industry in an ever changing environment it is possible to analyze current strategies implemented by the company to ensure it stay competitive. Then taking the dynamic environment it operates into consideration, it is possible to predict possible future outcomes for such an organisation, and then develop strategies that could direct the company into the direction it wishes to go. For this paper Primark will be analysed within the context of the fashion industry, competitors and the effectiveness of its current strategies using Porters 5 forces model. Then possible future environmental influences within the fashion industry will be derived from a range of publications, as well as what types of strategies competitors seem to be planning, and what Primark needs to do to ensure it stays competitive within this industry. Introduction Primark was first established in 1969 in Ireland as Penneys, and is currently operating a total of 154 stores in the UK, Spain and Ireland. Primark has become a leading player in the UK fashion industry, showing huge growth while other players were finding it hard to maintain their income stream, with some even closing the doors of some unprofitable stores. 1 The latest company results showed a increase of 30% in annual profits, with sales 17% up reaching the £1 billion. With great successes with some of its fashions such as its rage of military jackets, with more than 250 thousand sales up to date. With the UK fashion market becoming stagnant and consumers having less money to spend due to increasing interest rates, high house prizes and rising utility cost. Primark is offering high fashion and low prices to bargain hunting consumers. Yet Primark does not only provide consumers with low cost fashion, it has developed the ability to quickly turning out designs inspired by the catwalk and red carpet. Giving its consumers access to generic fashions developed from high label brands. 2 This strategy seems to not only be paying of in the UK, but also in Spain and Ireland. Primark opened its second shop in Spain on the 20th of September, and planning to open an additional 15 stores by the March 2007, expanding its business internationally. Currently they are employing over 18,400 people, which will increase to over 24000 by end of 2007. Analyses and Evaluation In order to analyse and evaluate Primark’s position within the fashion market, we need to look at internal and external factors influencing its operations. Maybe the most basic, but effective tool that can be used is the SWOT analyses. This will give us a very good indication of Primark’s current success as a fashion retailer. The strength and weakness part of the model look at the internal factors of an organization, and the opportunities and threats analyse the external factors that effects the companies ability to function successfully within a market. Internal Factors Strengths From the Primark website it is possible to derive some of its strengths such as: Full range of high quality, low priced fashion merchandise Generic fashion products reflecting high fashion world trends Established customer base Localised recruiting practices within international organisation Computerised Custom Clearance System Dedicated warehouse and distribution service From the above derived from Primarks website it is possible to see why this organization have the ability to undercut its competitors in the UK fashion industry. By manufacturing their merchandise in countries such as China and India with low labour costs, and then importing the goods via a very effective custom clearance system, and distributing it via a very efficient distribution system, gives them the ability to price their competitors out of the market. With a six week period from design to shop, they have the ability to have new fashion trends in the market long before their competitors. Weaknesses From a range of different publications some weaknesses within Primark can be identified such as: Small Profit margins Offshore manufacturing facilities in China and Eastern Europe Dependence on international air and rail deliveries Bulk production of same product line Copying of world fashion trends (do not design own fashion trends) The weaknesses mentioned above could effect the profitability of Primark, as any hold-up in the value chain from manufacturing to delivery, could result in huge losses in sales. The reason for this is its dependence on offshore operations and international transport, which is outside the direct control of the company. This a delay in any of the functions in the value chain could bring delivery to a halt. In addition Primarks strategy of using offshore facilities and creating generic products and not designing its own, indicate a shortage in skills and low productivity levels in UK, which is supported by the discussion paper from the Trade Union Congress (TUC) who stated that they acknowledge that there is a productivity gap between the UK and its major competitors, which in turn attributed to lower levels of skills, investment, research and development, and innovation in UK. 3 External Factors Opportunities Within the cut throat fashion market there are a range of different external conditions which results in opportunities for Primark to exploit. These can be seen as: Lower expendable income of consumers Huge profit margins of high-end brands (competitors pricing themselves out of the market) Tax breaks from developing countries to manufacturing companies Lower production cost offshore Investment capital available due to growth and increased annual profit Customers looking for high-end fashion at low prices Growing markets such as China Primarks ability to offer its customers new fashion at low prices have ensured that they have already gained a large market share in this segment of the market. Then through its investment in countries such as China and India it not only benefit from tax breaks and lower production costs, but have a additional opportunity to expand their sales within these huge markets. Threats Threats from the external environment of Primark could influence the way the organisation operates, and will negatively effect the companies overheads and profit margin. Threats to Primark can be seen as: Local and foreign Legislation Consumer Boycott due to market flooding from Chinese products Import quotas Intellectual property rights Transportation Union Strikes Trade Agreements Competitors Real threads for Primark are in their facilities in China and India. It is a well known fact that China’s legislation although becoming more investment friendly do favour government institutions, and that it has happened before that foreign companies were negatively effected by monetary policies and trade agreement changes than the government institutions. Next there is a concern worldwide that China and India seems to be flooding other markets with their textiles. Yet according to TUC when a finer analyses is done on trade figures, it is clear that although the imports from these countries has increased by as much as 50%, imports from other developing countries have been reduced, resulting in an actual “status quo” in the market (TUC, 2005, p29). Furthermore Primarks strategy of creating generic fashion products from fashion trends developed by its competitors can be seen as a grey area within the legal areana, as they are operating within a fine line of actually infringement on its competitors intellectual property rights. Primark had already be taken to court by two big players in the fashion industry, and on both cases they settled out of court. This their lack of developing their own unique fashion products could lead to more such cases and negative publicity. 2 Having looked at Primark and the environment it functions in using a SWOT analysis it is possible to see the forces that is influencing the organisation within the market. But to evaluate Primark’s success it may be more effective to also use Porters Generic Strategy Framework, as this will show us what Primark have implement successfully to establish itself in a highly competitive market. From this analysis it may also be possible to derive possible future strategies that may ensure it stay competitive. Porter’s Generic Strategies According to Porter the primary determinant of a firms profitability is the attractiveness of the industry in which it operates, and the secondary determinant is its position within the industry. To be able to become competitive a firm needs to position itself within the industry by leveraging its strengths. Porter continuous to argue that a firm strengths fall under two headings; cost advantage or differentiation. Then by applying these strengths in either a broad or narrow band, three generic strategies results; cost leadership, differentiation, and focus. Fig 1. Porter’s Generic Strategies 5 Taking Primarks position in the UK fashion market into consideration, it is clear that according to Porters Generic Strategies, they have opted for a Cost Leadership Strategy in the broad market scope, as they are clearly the leader in fashion commodity pricing. Yet it may also to be argued that they offer fashionable trends which may indicate a differentiation strategy, yet their products are more generics of those fashions from competitors that are the most popular with customers. This they do not offer real unique products. Primark also do not function in the narrow market as they offer a wide range of fashion products that spans almost the whole consumer market. Possible Strategic Changes to Ensure Primark Stay Competitive Primark have positioned itself within the UK market by implementing a Cost Leadership Strategy. This they have done by establishing offshore manufacturing facilities in Chine and India with lower production cost and tax incentives for investors, by streamlining transportation and custom processes, and lastly by establishing a very effective warehouse and distribution system. Yet it must be realised that competitors within the industry will follow suite and become a sever threat within the short to medium term. This for the company to keep its competitive edge it needs to evaluate different strategies. The first possible strategy for Primark may be to start designing their own fashion products. Due to the fact that Primark is already being followed by fashion media, and their products being accepted by its current customer base, it would be much easier to launch its own range of fashion products. This in turn would reduce the impact it currently faces due to intellectual property litigations. Next the growing markets in China and India offer a massive opportunity for expansion, and due to the fact that they have already invested within these countries, it will be much easier to establish retail departments and to establish a customer base before other entrants to the new markets. Conclusion Primark have established itself within a very competitive industry through innovation, efficiency and good business practices. Maureen Hinton, senior retail analyst at Verdict research organisation says the economic climate is perfect for Primark. “Customers have more of a draw on their wallets because of rising interest rates, rising utility costs and the flattening of the housing market, but we still need to buy clothes and woman want their fashion fix, so these no frills retailers are providing that service to them,” she says. 2 But although they can currently be seen as the market leaders in high fashion at low prices, it is with certainty that they will not retain this position for long, as competitors are already implementing their own strategies to retake the lost market share. One such company Marks and Spencer have already successfully turn its company around after showing losses the previous three years. So through a continuous strategic management, Primark can ensure it stay competitive, increasing its sales and this its profits. Through expanding their retailing to manufacturing countries they could establish themselves in these new markets, and in those markets they have already established themselves, they could opt for a Differentiation strategy, offering their already established customer base uniquely designed fashion products. References 1. Primark. Background. Accessed: 18/11/2006. Webpage: http://www.primark.co.uk/background.shtml 2. Gelb, Mallary. Primark – Kings of no Frills Fashion. BBC Money Programme. Accessed: 18/11/2006. Webpage: http://news.bbc.co.uk/1/hi/business/4466986.stm 3. Trade Union Congress (TUC). An Industrial Strategy for the United Kingdom. December 2005. A TUC discussion paper. ISBN 1 85006. 4. QuickMBA.com. Porter’s Generic Strategies. 1999-2005. Accessed: 18/11/2006. Webpage: http://www.quickmba.com/strategy/generic.shtml 5. Wikipedia. Porter’s Generic Strategies. 31/10/2006. Accessed: 18/11/2006. Webpage: http://en.wikipedia.org/wiki/Porter_generic_strategies Read More