PESTLE and SWOT Analysis of Primark 2016-2017
Kush, Jonathan (2017) "Pestle and Swot analysis of Primark 2016-2017" 123 Writing [Online] at https://www.123writing.com/free-sample/pestle-and-swot-analysis-of-primark-2016-2017
Analyse the internal or external environment of Primark using SWOT & PESTLE and give some recommendations and personal suggestions for the organisation’s future strategic practice.
Primark is an Irish clothing retailer with operations in the UK, France, Germany, Italy, Spain, and Ireland (operating as Penneys) and recently the USA. It is a subsidiary of Associated British Foods after being acquired in 2005. With global turnover totalling £5.4billion for the year ending 2015, Primark has enjoyed tremendous success in the last couple of years. Primark’s value proposition of low prices has ensured it becomes the low cost leader in low-priced, “disposable” fashion. This has attracted a lot of customers especially following the 2008 financial crisis and subsequent recession as cash strapped consumers flocked to it due to low prices. As a result, the Primark has enjoyed successive revenue growth and profitability since 2007 (see figure 1).
Figure 1: Primark revenue growth 2007 - 2015 (in million GBP)
2.0 Analysis of the current business environment affecting the UK clothing retail industry
The business environment that is affecting the UK clothing retail industry is made up of both the macro environment and micro environment. The macro environment is the most general layer of the business environment and consists of broad environmental factors that impact all organizations across all industries so firms use frameworks such PESTLE Analysis as well as others such as Porters Five Forces framework and SWOT to help them analyse the macro environment. Many macro level factors will directly impact an organization and thus it is vital for managers to develop an understanding of how changes in the macro-environment are likely to impact on individual organisations. The starting point for analysing macro-level influences is the PESTLE framework (see figure 2) which can be used to identify how future trends in the political, economic, social, technological, legal and the environment will impact on an industry and all individual firms (Johnson et al 2005).
Figure 2: PESTEL framework to analyse clothing retail industry environment in UK
2.1 PESTLE Analysis
2.1.1 Political factors (government action)
- In June 2016, Britain voted to leave the EU, in a move that was predicted to cause both political and economic upheaval and uncertainty. Unsurprisingly, Brexit sparked political turmoil across the UK with British Prime minister David Cameron resigning afterwards and Scottish Prime Minister Nicola Sturgeon calling for a second Scottish independence referendum to protect Scottish interests in the EU since majority of Scotland voted to remain (Douglas and Gross 2016).
- Further, the whole Brexit saga has caused a lot of uncertainty for businesses like Primark who have operations in Europe too. While some firms like Primark have benefited from a weak pound which fell against the Euro and Dollar following Brexit, Primark parent company ABF have stated the decision to leave the EU has created uncertainty in the business environment and financial markets. ABF noted that there would be an adverse transactional effect on the profit margin on Primark’s UK sales next year if Britain goes ahead and leaves the EU (McGregor 2016).
2.1.2 Economic factors
- Following Brexit, the pound sterling plunged to its lowest against the dollar for 31 years as financial turmoil intensified in the wake of Brexit (Toplensky et al 2016). This has also put pressure on London’s status as the financial hub of Europe with many investorssuch as those in assets threatening to pull money out of property funds.
- Nevertheless, Associated British Foods indicated that while the UK referendum decision to leave the EU has created uncertainty in the business environment and financial markets, the weakening of the Sterling since the referendum vote has positive benefits. For example, if current exchange rates continue, there will be a translation benefit for Primark and other clothing retailers for the remainder of the financial year (McGregor 2016).
2.1.3 Social factors
22.214.171.124 Growth of plus size fashion
Perhaps the biggest socio-cultural trends that many clothing retailers face in the UK are the rising obesity and an ageing UK population. According to the NHS (2015), the UK is now referred to as the “fat man of Europe” with almost 7 out of 10 British men and 6 out of 10 women now being classed as obese or overweight. It has been found that many obese female shoppers avoid shopping at certain retailers because a lack of plus size ranges and sizes. This is evidenced by some mainstream retailers like Zara and Topshop who still don’t stock plus-size ranges. But rising obesity levels do in fact present a major gap market opportunity for those clothing retailers (including Primark) who can cater toplus-size consumers (Mintel 2015). With half the UK population predicted to be obese by 2050, clothing retailers need to start investing in plus size clothing ranges (NHS 2015).
126.96.36.199 Ageing UK population
According to the Office for National Statistics, the UK population and labour dynamics are being altered drastically by the ageing population. Over the 40 year period between 1974 and 2014, the median age (that is the age at which half the population is younger and half the population is older) of the UK population has gone up from 33.9 years in 1974 to 40.0 years in 2014 (ONS 2015).
The UK for example expects to see double-digit growth in the number of 55-64-year-oldsby 2019, with the number of over-65s getting closer to accounting for almost a fifth of the UK population (2015). But statistics show the ageing population also comes with business opportunities as pension age consumers have been shown to be have more incomes since they stay in full-time employment for longer, and thus earn higher disposable incomes. Interestingly, 60% of 55-64s are buying clothes online, which shows online shopping is a key growth opportunity and trend.
2.1.4 Technological factors
The accelerating development and growth of e-commerce is continuing to open up more competition for traditional brick and motor businesses in the UK clothing retail as evidenced by the emergence of online Pureplays such Amazon, Asos, Boohoo and others. This new channel of distribution is opening up the competitive space due to its relative ease and low cost operational base. The fact that a traditional Brick and Motor clothing retailer like Primark doesn’t operate an e-commerce website makes it vulnerable to a decline in store sales as such technological developments continue to shape the retail environment (Mintel 2015).
2.1.5 Environmental factors
Recent trends that are influencing UK clothing retail industry include the rise of ethically and environmentally conscious consumers who continually demand firms to adopt practices such as paper packaging and use of recycled materials. Some retailers like H&M have already launched sustainable clothing lines made from organic cotton, and other environmentally friendly materials. Many retailers are also faced with government pressure that demands proper waste disposal.
One of the most recent employment regulations affecting the clothing retail industry in the UK was the introduction of new Workplace Pensions legislation that makes it compulsory for all companies to contribute 3% to their employees’ workplace pension for eligible British workers (Department for Business, Innovation & Skills 2016)
Table 1: PESTLE analysis for Primark and clothing retail industry
3.2 SWOT Analysis of Primark
- Primark has enjoyed tremendous success in the last couple of years due to its value proposition of low prices which has ensured it becomes the low cost leader in low-priced, “disposable” fashion. This has attracted a lot of customers especially following the 2008 financial crisis and subsequent recession as cash strapped consumers flocked to it due to low prices. As a result, the Primark has enjoyed successive revenue growth and profitability since 2007 (see figure 1).
- Primark’s core strength of offering cheap clothing has further enabled the brand to overtake the Arcadia Group to become third largest clothing and footwear retailer in the UK (see figure 2).
Figure 2: Leading top 10 specialist retailers: net revenues, 2010-14
- The biggest weakness Primark faces is consumer perceptions that it is unethical, which on one hand is a reflection of the increasing public awareness towards the downsides of fast-fashion brands in the wake of fast fashion disasters such the 2013 Rana Plaza disaster where Primark, along with others, such as H&M, and Mango were implicated in the death of 1,138 workers (Clean Clothes Campaign 2015). In a bid to remedy the damage caused, the brand haspaid a total compensation bill totaling $12m to families of the deceased workers (Butler 2014).
- Primark also suffers from a consumer perception that it is a basic brand and not trendsetting or stylish which may lead it to losing out to young and upcoming fashion brands that offer a low price value proposition e.g. Boohoo.com.
- Another major weakness Primark faces is that it relies too much on the UK market which generates more than half of Primark’s global turnover. The UK market for example generated £2.5 billion in revenue for the year ending 2015 out of a global turnover totaling £5.4billion for that year.
- Finally, Primark continues to be hampered by a continued lack of an online ecommerce presence, which is the fastest growing channel in the UK retail market.According to Mintel (2015), while Primark remains very successful in the UK, sales growth has slowed and will likely continue since as long as the company continues without an online presence since all growth is driven by new store expansion as the main sales growth strategy
- Rising obesity levels present a major gap market opportunity for those clothing retailers (including Primark) who can cater to plus-size consumers (Mintel 2015). With half the UK population predicted to be obese by 2050, clothing retailers need to start investing in plus size clothing ranges (NHS 2015).
- Now that the company has ventured into the US market with a store in Boston, with 10 more stores planned in 2016, which is likely to lead to soaring revenues (Barrie 2015)
- Brexit saga has caused a lot of uncertainty for businesses like Primark who have operations in Europe too. Primark parent company ABF has stated the decision to leave the EU has created uncertainty in the business environment and financial markets.
- ABF further noted that there would be an adverse transactional effect on the profit margin on Primark’s UK sales next year if Britain goes ahead and leaves the EU (McGregor 2016).
Figure 2: Primark SWOT Analysis 2016-2017
Barrie, Leonie (2015) “How Primark’s cut-price clothing could shake up US retail” Just Style Magazine, available [Online] at http://www.just-style.com/analysis/how-primarks-cut-price-clothing-could-shake-up-us-retail_id126430.aspx [Accessed 01 April 2016]
Butler, Sarah (2014) “Primark to pay £6m more to victims of Rana Plaza factory in Bangladesh” The Guardian, [Online] at
http://www.theguardian.com/world/2014/mar/16/primark-payout-victims-rana-plaza-bangladesh [Accessed 13 July 2016]
Clean Clothes Campaign (2015) “Fashion Victims - The true cost of cheap clothes at Primark, Asda and Tesco” [Online] at http://www.cleanclothes.org/resources/national-cccs/06-12-fashion-victims.pdf/view [Accessed 13 July 2016]
Douglas, J., and Gross, J. (2016) “‘Brexit’ Sparks Political Turmoil across U.K.” Wall Street Journal, [Online] at http://www.wsj.com/articles/brexit-fallout-roils-u-k-labour-party-1466937187[Accessed 13th July 2016]
Department for Business, Innovation & Skills (2016) “The new State Pension” [Online] at https://www.gov.uk/new-state-pension/youve-been-in-a-workplace-personal-or-stakeholder-pension [Accessed 20 July 2016]
Johnson, G., Scholes, K., and Whittington, R. (2005) “Exploring corporate strategy” FT Prentice Hall
McGregor, Kirsty (2016) “Primark owner boosted by stronger euro” Drapers, [Online] at http://www.drapersonline.com/news/brexit-to-have-positive-and-negative-effects-says-primark-owner/7009053.fullarticle[Accessed 13 July 2016]
Mintel (2015) “UK Clothing Retailing” Mintel: London
NHS (2015) “Britain: 'the fat man of Europe'” [Online] at http://www.nhs.uk/Livewell/loseweight/Pages/statistics-and-causes-of-the-obesity-epidemic-in-the-UK.aspx[Accessed 10 June 2016]
Office for National Statistics (2015) “Ageing of the UK population” [Online] at
http://webarchive.nationalarchives.gov.uk/20160105160709/http://www.ons.gov.uk [Accessed 13 July 2016]
Statista (2016) “Primark/Penney’s global turnover 2007 – 2015” [Online] at http://www.statista.com/statistics/383785/primark-revenue-europe/ [Accessed 13 July 2016]
Toplensky, R., Martin, K., Lewin, J., and Rennison, J. (2016) “Sterling falls to new low in wake of Brexit” Financial Times, [Online] at http://www.ft.com/cms/s/0/f6880350-428a-11e6-b22f-79eb4891c97d.html#axzz4EHCJCyiQ[Accessed 13 July 2016]
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