Primark Managerial Strategy - Case Study Example

An Analysis of Primarks Success As Presented to an Audience of Managers From the Fashion Industry. Amidst a global economic downturn a few entitiesin the retail industry have enjoyed a level of success that is unmatched by their contemporaries. What this presentation hopes to achieve is to demonstrate how ‘Primark’ has achieved this level of success through the contribution that operational efficiency, such as operational strategy, process efficiencies, logistics and inventory management have had on the success of the firm. To answer the question of how Primark has achieved this level of success, this essay will first give a background on the organization and secondly perform a background of the current retail climate. Next this paper will perform an in-depth analysis of the contributing factors of the firm that has made it so successful in today’s climate. A Background on Primark The origins of Primark are in Ireland in where in1969 the company was set up as ABF but traded as ‘Penneys’ (The Times, 2007). According to the company website by the end of 1971 there were twelve stores in Ireland and one additional store in Northern Ireland (Primark.co.uk 2009) However, it was not until the late 1990’s that the organization really started to reach its full potential as operating as Primark. The president of the company Arthur Ryan made a drastic decision to redirect the focus of ABF towards what would ultimately be the youth fashion market. It was in 1995 that Primark had a significant shift in the growth of their business with acquisition of the BHS One-Up discount chain of stores in the UK. It was from this new acquisition that, according to The Times (2007), Arthur Ryan (President of the company) became the driving force of the organsiation to continue to purchase a great deal of stock to drive down costs in an effort to be the cheapest merchants on every High street. It is from this business push that the modern organizational model was developed and the familiar image of Primark was first established. A Snapshot of Primark and its Market Penetration. According to the company website (http://www.primark.co.uk/, 2009) as of 2009 the company is operating a total of 193 stores 138 in the UK 38 in Ireland 14 in Spain And 1 in The Netherlands, Portugal and Germany respectively. At the moment according to Retail-Week.com (2005) Primark controls 2.5% but this trend is growing for the organization. Speaking of the ‘Value’ clothing market it has been further estimated that the market in the UK alone is worth £6.4 billion (Retail-Week, 2005) and again this is a growing trend. Ethical Issues Facing Primark According to McDougall writing for The Guardian, Primark has faced a number of allegations of unethical behavior in the last few years (2009). Earlier this year the firm was accused of paying illegal immigrants to make knitwear for the firm and stands accused of paying them just £3.50 an hour which is under the national minimum wage. These allegations come after media accusations in 2008 that the firm was sourcing goods from textile mills in developing countries that have both unsafe working conditions and that utilize child labour (Finch, 2009). To help combat this negative image, the firm quickly sacked three of its Indian suppliers and according to the website began an ethical sourcing initiative that incorporates establishing what they have termed “Ethical partnerships” with all companies along the supply chain. Furthermore to help improve the company image, Primark became a member of the Ethical Trading Initiative (ETI), and by engaging more and more regional stakeholders such as non governmental organizations (NGO’s) as well, trade unions. The result from this action is that the firm has moved up in the perception of its customers from one of the worst offenders of unethical behavior. An Examination of the Clothing Retail Climate. In a Reuters interview with Sir Stewart Rose, the Chairman of Marks and Spencer (M&S) had espoused his belief that the next couple of years in the Bristish clothing retail industry are going to be difficult (Chandran, 2008). It is simply the case that consumer confidence is now low amidst a global economic. Whilst the effect has been felt strongly in the UK it is the case that Rose expressed that there is potential in growth markets in oversees territories which is a strategy that most UK clothing retailers are adopting. This begs the question that if M&S are facing declining profits in domestic markets, and presumably most other UK based clothing retailers are in a similar position, why is it that Primark has been sheltered from this trend and have experienced great opportunity for growth. What Factors Have Influenced the Success of Primark. Business Strategy It is no secret to anybody that has ever shopped at Primark, that the products on offer are affordable. As mentioned earlier the president of the company, Mr. Arthur Ryan has always made it a primary focus of the organization to take steps that drive down the cost of merchandise so that the firm can be the cheapest clothier on every High street. Traditionally this has been done by purchasing in bulk, utilizing clothing patters that have simple designs and easily accessible fabrics, manufacturing clothing only in the most popular sizes, and minimizing the advertising budget. While this model has brought success to the firm special attention will be given to how Strategy, Process, Efficiencies, Logistics, Location and Inventory Management have helped to shape the firm. Location While the origins of the company can be traced back to Ireland in recent decades the real growth of the company has been in the UK with the flagship retail outlets in Liverpool (84,000 square feet) and Bristol (100,000 square feet) in size. Keeping this in mind, the company headquarters are still located in Dublin and that nation still accounts for a significant portion of the company retail success. With 138 stores across the UK there is hardly a city or town that does not have a Primark, and it has been a company focus to ensure that the retail outlet is usually on a high street to directly compete with other retail chains. Recent expansion into international markets has seen the opening of stores in major continental European cities. Primark Store Layout. While the company offers a range of clothing products, the focus of their product offerings has been on Sporting clothing Accessories and footware Formal Causal Baby Childrens Adolescent Lingere Basic Cheaper Items Home items. It is the case that the layout of the store reflects these diverse product lines with separate sections or departments to offer these products eg. baby clothing is separated from children’s which in turn is separated from adolescent. Upon examination of a typical Primark one would find that usually the men’s and women’s departments are on opposite sides of the store. Primark is also unique in the display area clothing from different department are present and as such, interested consumers must often travel through the whole store to find what is desired. What this ultimately translates to is that while searching for the desired garment customers are more likely to pass by other items that they might be interested in. Primark Inventory Management. Because the majority of products on offer at a typical Primark are relatively inexpensive, the company has pursued a policy of purchasing in bulk in order to ensure the reduced prices. While this proves very helpful when a specific product is in high demand, this holds a serious complication when the product is not i. To remedy this situation the company employs a policy of constantly reducing the prices of less poplar items until it reaches a price point that makes the product financially attractive enough for a customer. Another inventory strategy employed by Primark as briefly mentioned above is that the company places the focus of its purchases on clothing in the most popular sizes. While this strategy may prove inconvenient for people who are very petite or portly, for the sizing structure for the majority of consumers is adequate. Production Efficiencies. Primark has pursued a policy of continual relationship improvement with their suppliers. Because as mentioned before the company tends to buy fabric and finished products in bulk, Primark is able to negotiate the best possible price from its suppliers as well as establish improved accountability for delivery. One further production strategy employed by the company is to use simple designs for the majority of their clothing. What this translates to is that the suppliers do not have to spend as much time working on each individual garment which further reduces the manufacturing price for Primark. Current Market Trend. In the wake of the global economic crisis Primark has been able to capitalize on more budget conscious consumers by nature of their business model. With many consumers paying a lot more attention to their budgets and by Primark promoting themselves as the cheapest clothing retailer the retailer is able to fit the consumer mold for clients more effectively. Conclusion The strength of Primark falls on its straight forward business model. Since the shift toward the value conscious clothing retail market, Primark has made it its goal to have locations on High streets in major cities, and has made it its goal to keep the prices as low as possible. The company has achieved this goal by solid relationship management with their suppliers which involves buying in large quantities, purchasing only the most popular sizes and keeping garment design simple. In the wake of the current financial crisis Primark is poised to take advantage of a greater number of more budget conscience consumers. Reference List Chandran, Rina. (Apr 23, 2008)M&S sees tough retail climate for 2 years. Available online at http://uk.reuters.com/article/idUKBOM10881020080423 Accessed on November 20th, 2009. Finch, Julia.(17 June 2008) Primark sacks three Indian suppliers for using child labour. Available at http://www.guardian.co.uk/business/2008/jun/17/primark.ethicalbusiness Accessed on November 20th 2009. McDougall, Dan (11 January 2009) The Guardian; Primark in storm over conditions at UK supplier: Fashion giant acts after investigation. Available online at http://www.guardian.co.uk/business/2009/jan/11/primark-ethical-business-living accessed on November 20th 2009. Primark Company Website (2009) Available at http://www.primark.co.uk/page.aspx?pointerid=eb44df4565934edca627dac6ec12145a Accessed November 20th 2009 Primark oldie’s golden touch, The Times, (pril, 2007) Available at http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article1687148.ece Accessed on November 20th 2009. Retail-Week.com (July, 2005) Primark to take value clothing second place. Available at http://www.retail-week.com/primark-to-take-value-clothing-second-place/42663.article accessed on November 19th, 2009. Read More