Why Penneys is no longer our little secret

Primark opened its doors in France last month, the same year they recorded a 44% increase in yearly profits.

WE’VE all heard the story about tourists in this country who mistakenly thought ‘Penneys’ was another way of saying ‘thank you’ — down to the frequency with which Irish people say, “Thanks... Penneys” after receiving a compliment on an item of clothing. Of course, it’s probably only an urban legend, but it does reflect the prominence Penneys has in the Irish marketplace.

“‘Penneys has brought democracy to the high street, proving anyone can look stylish on a budget,” says Corina Gaffey, stylist and fashion director of Stellar magazine.

“It really taps in to the Irish psyche and gives people from all income brackets what they want.”

And it’s not just Ireland anymore. What started off as our little secret is fast becoming one of the high street’s biggest success stories.

From the opening in Belfast in 1971 and Derby in 1973, Penneys (or Primark, as it is called outside of these shores) now owns 161 stores in the UK alone.

The company moved into the Spanish market in May 2006, the Netherlands in 2008, Portugal, Belgium, and Germany in 2009, Austria in 2012, and in December of 2013, the first Primark store was opened in Marseille.

Expanding into France, a country renowned for its haute couture, may have seemed like a bold move for the discount retailer, but John Bason, the finance director of ABF (Associated British Foods), the company which owns Penneys, said he was confident they would succeed in the French market, saying, “Primark is a follower of fashion and provides fashion at the best prices on the high street.”

The opening of the 62,800 square feet Marseille store would seem to support this as it attracted huge crowds, with shoppers reportedly drawn to such items as faux-fur gilets, metallic dresses and puffa jackets. Early reports remain confident with business analysts such as Jefferies’ James Grzinic forecasting that there will be at least 25 Primark outlets in France by 2018, which will further increase profits for ABF. “Vive l’Irlande,” as the Mayor of Marseille shouted while cutting the ribbon at the store opening.

It truly is an Irish success story, with a reported 44% increase in operating profit this year. Considering the rate of expansion, and the addition of 800,000 sq ft of retail selling space, you might expect Penneys’ profits to have taken a hit, but as of December 2013, the company’s revenue was actually up by 22% on the previous year.

There seems to be no end to the demand for the famous ‘Primani Effect’.

It all started in the 1960s, when Garfield Weston met Arthur Ryan. Ryan, the son of a Cork-born insurance clerk, had formerly worked in London for fashion wholesaler Carr and McDonald before returning to take up employment with Dunnes Stores, Cornelscourt.

After being hired by Weston, whose descendants are now the main stockholders in ABF, Ryan persuaded his boss that ‘value fashion’ for young people was a huge growth area. Weston gave him a start-up fund of £50,000 and the first Penneys store was opened in 1969, with the Cork store in 1971 becoming the first large store outside Dublin to open. Ryan’s belief that offering ‘amazing fashion, at amazing prices’ for the under-35 market would be a hit was proved correct, and the company began expanding into the UK in the 1970s. It was here the name ‘Primark’ came into existence, in order to avoid confusion with the American company JC Penney which had already trademarked the name for the British market.

Ryan remained an omnipresent figure throughout his reign at the company, and was reported to insist on visiting each of his stores twice monthly — a difficult task once the expansion of the company became more widespread. Despite this, Ryan remains difficult to identify, even to most of his staff.

Described as a ‘cross between the Invisible Man and Columbo’, he is said to arrive on these store visits incognito, his head down, but always accompanied by his personal security detail.

A great deal of his success was attributed to this careful attention to his stores, as well as Ryan’s awareness of his competitors, and his willingness to undercut their products.

In 2005, he masterminded the acquisition of the 199-store Littlewoods chain in the UK, with the hopes that Primark could also reach the ‘middle income’ consumer.

At the time, a market research group TNS stated that few Littlewoods shoppers would shop at Primark, and that M&S would be the main beneficiary of that trade. This proved to be false (M&S reported a further reduction in profits for fashion merchandise in November of this year), and this acquisition is now seen as a huge breakthrough, with Primark becoming perceived as cheap and chic. In 2009, with Primark then accounting for a third of ABF’S estimated £300 million operating profit, Ryan stepped down as chief executive and was replaced by Paul Marchant.

Arthur Ryan remains as chairperson and has been called the “creator, driving force and inspiration” behind Primark by George Weston, ABF chief executive.

As invaluable as Arthur Ryan’s involvement is to the success story of Primark, the continued profitability of the company since his retirement suggests there are other contributing factors.

A study published in April, 2013 proposed that the longest lasting recession in a century may have created an ‘austerity shopping boom’, with budget stores such as Aldi and Lidl also reporting record sales figures. Consumers want quality goods at low prices, and Penneys is perfectly placed to offer it to them. It is, as Sarah Rainey, a journalist with the Telegraph remarked, “to clothes what Lidl is to food: a perfectly acceptable, austerity-savvy alternative to Waitrose”.

Penneys say that the reason they can offer such low prices is because of the company’s refusal to spend money on huge advertising campaigns, celebrity endorsements or an online presence.

Their highly efficient supply chain, their insistence on buying directly from factories in Asia without involving any agents, and buying stocks in large volumes ensures that they can keep their costs low.

This well-organised supply chain also keeps their lead times to a minimum, with buyers claiming they can bring catwalk fashions to the consumer within six weeks of a trend’s debut on the catwalk during fashion week.

In a market where access to fashion is instantaneous due to internet blogs and live streaming of fashion shows, fast-moving merchandise is imperative.

Consumer demand for ‘knock-offs’ of couture items has proved problematic for Primark in the past.

Primark was taken to court by Monsoon in 2004, by Superdry in 2010, and was forced to pay a large settlement to a British textiles company in 2011.

In April, 2013, the Rana Plaza, an eight-storey commercial building in Savar, Bangladesh, collapsed. Considered to be the “deadliest garment-factory accident in history”, there was an estimated death toll of 1,129 people.

While many other fashion retailers were also sourcing clothes from the Dhaka factory — the company says they share 97% of their factories with other high street retailers — Primark appeared to take the main brunt of public hostility.

On April 27, the Primark store on Oxford Street in London was besieged with protesters.

Primark reacted swiftly, giving the equivalent of three months’ wages to affected families immediately.

This compensation was recently extended for another three months and Primark claims to be actively working on a scheme for long-term compensation.

The Trade Union Centre in the UK argues that Primark could do more to lobby the Bangladeshi government to force factory owners to increase minimum wages but Frances O’Grady, the general secretary of the TUC, has said, “Primark deserves credit for taking action quickly in the aftermath of the Rana Plaza disaster. Sadly, the same cannot be said of some of their high street rivals.”

Paul Lister, the general counsel who is in charge of business ethics for the company, said Primark was the first to admit it was in that building and that the company was also first on the ground with aid, with Galen Weston adding that he was, “troubled by the deafening silence from other apparel retailers” on the disaster.

Weston’s public call for change after the factory collapse won him the title of Canadian Press Business Newsmaker for 2013, with marketing experts calling his response to the crisis “enormously clever and apparently sincere”.

Despite the tragedy, Primark still maintains that its presence in developing countries is a positive thing, with Lister saying, “The reason it’s (the garment industry) a force for good is you’re taking a whole load of people from abject poverty, from the fields, from the farms, and you’re putting them into money earning, you’re giving them bank accounts.”

The prediction of Sarah Morris, business development director of Trajectory Partnership, that the incident would have, “zero impact on the company” seems to be true, if sales figures are anything to go by and Primark are focusing on making their Spring Summer 2014 collection their best one yet.

A buyer for womenswear told the Irish Examiner that the main stories for their new collection are ‘Modern Couture’, which consists of voluminous skirts and fitted dresses in a soft palette of blush pinks combined with vintage styling to make up the look; ‘Bubblegum High’, with its preppy, athletic styling which adds a retro take on casualwear with varsity jackets and American football t-shirts featuring as key items; and ‘Polaroid Nostalgia’ which the buyer described as a girly girl’s dream with a pick ‘n’ mix of sugary sweet colours and faded florals.

Corina Gaffey, who was in Paris to view the Penneys SS14 collection, told the Irish Examiner, “From graphic prints, to sugary soft pastels and sports luxe, there’s loads of lust-worthy pieces from the Penneys spring collection to snap up for your spring wardrobe. “Check is hanging around in spring, though in a simpler version than wintery tartan, their pastel midi skirt is definitely a key piece to invest in to give your wardrobe a spring update.

“Nostalgic and retro elements were a big part of the Penneys spring collection and it was obvious that past decades were a big influence.

“Voluminous skirts and fitted dresses give a ’50s nod while fizzy drink logo tshirts were layered with dungarees for a fun ’90s vibe.

“The one top that got an amazing reaction at the press day was the cartoon character motif My Little Pony jumper — super cute!

“Shoe-wise, Penneys have a pair of silver metallic brogues that I have my eye on, they will add a boyish touch to your look and are perfect with boyfriend jeans, skinny jeans or dresses.”

Beyond 2014, what does the future hold for Penneys?

There have been reports that the company might open in the US, after they appointed Allan Molloy, programme director for new markets, to look at the possibility of expansion in the states.

A spokesperson for the company confirmed this, but said it was “purely exploratory”.

How Penneys will fare in the difficult American market remains to be seen, but given their seemingly unstoppable success, it would seem foolish to wager against them.


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