Staying offline pays the Penneys

Primark/Penneys is one of Europe’s fastest growing fashion chains. And it has nothing to do with the web, says Sarah Shannon

YOU can’t see them on Instagram, read their tweets on Twitter, or pin them on Pinterest. We’re not talking about your grandparents, but about Primark, one of Europe’s fastest-growing fashion chains.

Bigger rivals like Zara, H&M, and Gap lure shoppers via Facebook, YouTube, and bulletin board Pinterest, and add country-specific websites to target new markets. Primark, though, has ruled out selling its budget clothing online, saying shops offer so much growth it doesn’t need the web. Even social media barely plays a role.

Primark, or Penneys as it’s known here, was founded in Dublin in 1969, and has prospered by selling some of the cheapest clothes around thanks to a tight rein on costs, evident in its small staff numbers, stores crammed with merchandise, and general avoidance of advertising. The 257-shop chain saw its sales jump 15% to 4.05bn last year, and this week said it expects revenue for the six months to Mar 2 to grow 23%.

By keeping overheads low, Primark can offer coloured denim jeans for around €8, half the price of a similar pair at H&M and less than a fifth what they might cost at Zara. It also keeps margins thin: Primark’s operating profit is 10.2% of sales, less than at Zara and H&M, according to data compiled by Bloomberg.

Setting up a separate web store would be expensive and fulfilling orders for low-value items wouldn’t be profitable, according to Matt Piner of market researcher Conlumino. So not going online “completely makes sense because the cost would destroy their margin”, said Piner.

“The challenge for them is to keep the buzz around the brand, and keep that appeal for younger shoppers. If they can keep doing that, not being online won’t be an issue.”

Primark’s web weakness isn’t hurting profit, which Société Générale estimates will increase 35% to €555m this year. That compares to 26% growth for Zara, and a 9.5% lift for H&M, according to Bloomberg data.

While billionaire Philip Green’s Topshop and H&M court young shoppers with Instagram photos of models backstage at London Fashion Week and tweets about celebrities wearing their clothes, Primark is silent. It has a fan page on Twitter, but not its own, and more than 460,000 likes on a Facebook page the company introduced last year. That might seem OK, until you consider that Zara’s Facebook page has about 16m fans.

Primark’s website, meanwhile, has more details about what it calls its ethical trading standards than its fashions. A “product” page features thumbnail-sized pictures of about 30 outfits — with no prices. Images for children’s clothes are “coming soon”, the page promises.

Primark would be wise to better engage shoppers via social media, according to Kate Ormrod, an analyst at Verdict Research. Ormrod suggests that at a minimum the company should offer styling tips.

“It would get people wanting to go to the stores. Primark is way behind the likes of Topshop. They’ve hardly investigated online, which is quite disappointing.”

Primark makes no apologies about its web strategy and has no plans to add online sales, said finance director John Bason.

“The growth we’re getting in topline and profit in Primark, without a transactional website, really speak for themselves,” he said.

Bason does acknowledge that Primark could improve the site as a place where shoppers can better peruse its offerings. “They’re working on it,” he said, without giving a timetable.

Arcadia Group, the owner of Topshop, said ecommerce sales climbed 22% last year as it expanded to 112 countries. Next says revenue for its online and catalogue business rose 16% as it extended delivery to Russia and Latin America. At Asos, an online-only British fashion chain that adds 1,500 items every week, sales rose 32% last year.

Developing an online business isn’t easy or cheap, according to Mark Hudson, of PricewaterhouseCoopers. It requires a supply chain flexible enough to handle the demands of large flagship stores alongside small online orders, and smart enough to give timely, accurate information about whether an item is in stock or not.

Even without a web presence, “I can see this business doubling over the next five years in terms of sales and profits”, said Darren Shirley, an analyst at Shore Capital. “There’s more than enough growth to go for in Europe.”

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