Strategic Analysis of Primark USA 2018
- Primark UK Pestle Analysis 2018
- Primark UK Swot Analysis 2018
- Primark UK Porters Five Forces 2018
- Primark UK Value Chain Analysis 2018
Primark is an Irish clothing and accessories retailer with its headquarters in Dublin, Ireland. It was founded in 1969 by Arthur Ryan and is a subsidiary of British food processing company Associated British Foods (ABF). Primark operates over 345 stores in over 11 countries worldwide according to Statista (2018b). In 2017, Primark recorded a 7053 million GBP revenue that was an increase from its 5949 million GBP revenue in 2016 (Statista 2018c).
2.0 Pestle Analysis of Primark USA 2018
Using this analysis, we identify Primark USA’s major key drivers of change that mainly comprise of opportunities and threats in its external environment and how they influence the number of people who purchase Primark’s clothing products.
2.1 Political factors
The US-China trade war threatens the profitability of Primark. In this trade war, both US and China have levied 25% tariffs on US $50 billion worth of each other’s imports. Trump went a step further and imposed a 10% tariff on US $200 billion worth of Chinese imports whose rate is expected to rise to 25% by Jan 2019. The 10% tariff on $200 billion includes tariffs on Cotton and all the things related with textile production (cotton yarn, cotton sewing thread, cotton woven fabric, and cotton waste) and companies that would bring the goods from China will face 10% of tariffs. Other taxable products include Nylon yarn, polyester yarn, viscose, jute, hemp, and pulps of cellulosic materials are also in the list. This threatens the profitability of Primark as its raw materials could be heavily taxed resulting in high production costs (Textile Today 2018).
2.2 Economic factors
The low unemployment rate in US gives Primark an opportunity to improve its profit margins. According to Statista (2018a), unemployment rates in the US dropped from 4.87% in 2016 to 4.44% in 2017. With low unemployment rates, consumers have high disposable incomes and high spending power to purchase Primark’s clothing, which gives it an opportunity to improve its profit margins.
2.3 Social factors
According to Johnson et al, Social inﬂuences can include changing cultures and demographics. The growth in population of plus size people, especially women in US gives Primark an opportunity to grow. In the US clothing industry, sizes 14 and above are considered plus size and according to research by Plunkett Research, approximately 68% of American women wear size 14 and above (George-Parkin 2018). However, according to Statista (2018), The average U.S. women’s dress size is between 14 and 16, meaning that plus-size is the new average yet there are few plus size women. Given that the plus size apparel market is expected to reach 24 billion dollars in sales by 2020, up from 20.4billion in 2016, it gives Primark an opportunity to improve its profit margins by targeting the plus size market.
2.4 Technological factors
Like in all other business sectors such as automobile, banking, extra, technology is also revolutionizing the fashion industry especially with E-Commerce. The emergence of technologies such as Internet of Things (IoT), Artificial Intelligence (AI), Virtual Reality (VR) gives the fashion industry a new sense of direction by providing more streamlined and enough processes for customers to acquire products which results in high customer satisfaction.
The IoT technology will let people interact with objects through the internet. Therefore, apparel products will have digital capabilities that allow customers to communicate with retailers. For example, NADI X yoga pants have sensors built in around the hips, knees and ankles that guide users into alignment through vibration as they strike poses.
In addition, with the evolution of Big data, most retailers are utilizing AI to collect, organize, and sort data in different groups that can be used to predict what customers are looking for and recommend it. For example, with Screenshop app that uses image recognition, customers can take a photo of any clothing they like then use the app to find similar clothing online with corresponding prices. This can enable Primark to improve its customer satisfaction (Shamir 2018).
2.5 Legal factors
In USA, the state of California enacted new laws that affect the apparel industry among which are rise of employee minimum wage, clear disclosure of hazardous materials and parental leave act which requires companies to provide 12 weeks of unpaid leave for baby bonding which includes new child through birth, adoption, or foster placement. Considering minimum wage, companies with over 26 employees are required to increase minimum wage to $11 an hour which affects the profitability of Primark. In addition, supervisors of companies with over 50 employees should receive training every after two years to deal with gender identity and expression to minimize sexual harassment at the work place (Mantor 2018).
Considering clear disclosure of hazardous materials, companies that use harmful chemicals should display data sheets that show exactly what chemicals are being used and which measures have been put in place to clean the chemicals from the environment.
2.6 Environmental factors
In the past, consumers bought clothing depending on comfort, style or aesthetic appeal. Nowadays, people are opting for comfortable, stylish yet green products made from eco-friendly fabrics which has driven product demand. Therefore, most clothing and apparel companies have adopted strategies to sustainability. For example, Primark packs customers products in brown paper bags which are friendlier to the environment. Also, Primark has partnered with the charity K.I.D.S./Fashion Delivers to donate unsold items from its U.S. stores hence minimizing the number of unsold items that could end up dumped in landfills (Primark 2018).
3.0 Swot Analysis of Primark USA 2018
- Primark has a large customer base because it operates over 345 stores in 11 countries worldwide (Statista 2018b).
- Primark has a strong parent company, Associated British Foods, therefore, in case of losses, its parent company can easily divest in its operations.
- Primark has a poor reputation. Primark has been known as unethical and one of the companies that use slave labor. However, to clear its bad reputation, Primark published a list of all its suppliers (Guilbert 2018).
- Primark has the chance to embrace new technologies such as Internet of Things, artificial intelligence, virtual reality, among others to attract more customers and enhance sales. This can also help improve customer satisfaction (Shamir 2018).
- The low unemployment rates in US also give Primark a chance to improve its profit margins. With low unemployment rates, consumers have high disposable incomes and spending power to purchase clothing products from Primark (Statista 2018a).
- The growth in population of plus size people, especially women in US gives Primark an opportunity to grow as approximately 68% of American women wear size 14 and above according to Statista (2018).
- New enacted laws by the state of California which among others include increase on employee minimum wage to $11 per hour threatens the profitability of Primark (Mantor 2018).
- The US-China trade war threatens the profitability of Primark. In this trade war, Trump imposed 10% tariffs on $200 billion Chinese goods which among others include cotton, Nylon yarn, polyester and jute (Textile Today 2018).
4.0 Porters Five Forces Analysis of Primark USA
4.1 Bargaining power of the buyers
According to Grant (2010), if there is a high concentration of suppliers compared to the buyers in an industry, then buyers have a relatively high bargaining power. By applying this factor, we can note that buyers of Primark’s products have high bargaining power due to availability of many fashion brands like H&M, Zara, Forever 21, among others that offer similar products at similar costs which makes product switching costs low. With low switching costs, customers can easily switch from buying Primark’s products to its competitors products which affects its profitability. In addition, Grant (2010) further explains that if products are less differentiated in an industry, then buyers are more willing to switch products brands depending on the price. Considering the above factor, we can conclude that low product differentiation in the clothing and apparel industry makes it easy for consumers to switch product brands due to low customer loyalty.
4.2 Threat of Substitutes
If there many substitutes for a given product in the market, then customers are price sensitive and can easily switch to using substitute products but if there are no substitutes, then consumers are price insensitive (Grant 2010). By applying these factors, we can note that this is considered a low threat by Primark due to presence of few substitutes in the market. Substitutes to general clothing are mainly sportswear, beach wear such as swimming costumes, lingerie, among others that can occasionally be used instead of normal clothing. For example, sportswear can be worn during sports activities and beach wear like swimming costumes can only be worn on specific occasions.
4.3 Threat of new entry
According to Grant (2010), if capital costs of establishing firms in an industry are low, then it encourages more companies to join the market hence low threat of entry. Considering the above factor, we can conclude that this is perceived as a high threat by Primark due to low capital requirements needed to manufacture apparel. This makes it easy for new companies to start manufacturing apparel and compete in the apparel market. In addition, Grant (2010) further explains that if products of established firms are differentiated, then they have high brand recognition and customer loyalty. But products in the clothing and apparel industry are not uniquely differentiated. Therefore, low product differentiation by existing apparel companies like Primark, H$M, among others, makes it easy for new entrants to prosper. This is because low product differentiation drives low customer loyalty thus customers can easily switch to new products in the market.
4.4 Competitive rivalry
According to Grant (2010), if there is a high seller concentration in an area compared to the number of buyers, then there is intensified competition in the market. Considering the above factor, we can note that Primark faces intense competition from competitor brands such as Forever 21, H&M, among others in the US clothing market. However, Primark offers cheaper clothing products compared to other brands like H&M and Zara which has encouraged its growth and prosperity in US (The Irish Times 2018).
4.5 Bargaining power of suppliers
According to Grant (2010), the ease with which companies in an industry can switch suppliers determines the suppliers’ bargaining power. Also, the ability of suppliers to integrate vertically, where they can manufacture the clothing themselves gives them a high bargaining power. Considering the above factor, we can note that suppliers of Primark have a moderate bargaining power because even though there many suppliers in the clothing and apparel industry market, many of them have the power to build their own brands and compete with already existing companies like Primark, H&M, Zara, Forever 21, among others in the market. On the other hand, Primark is also a big and growing clothing company operating in over 12 countries with 352 stores (Davey 2018).
From the Pestle Analysis, we note that Primark has several growth opportunities such as growing number of plus size women in the US which gives it a large customer base, decreasing unemployment rates in the US which enable high spending power by consumers, among others. Primark also faces threats such as new enacted California laws like increment of minimum wage which could affect its profitability. However, Primark’s biggest threat is competition from other clothing brands like H&M, Forever 21, Zara, among others. From the Porters analysis, we show that high consumer bargaining power, high threat of entry and intensive competition in the industry threaten the profitability of Primark.
Davey James (2018) “Primark owner encouraged by first U.S stores” Reuters [online] at https://www.reuters.com/article/us-ab-foods-results/primark-owner-encouraged-by-first-u-s-stores-idUSKBN1HO1B4 [Accessed on 6th.11.2018].
George-Parkin Hillary (2018) “Size, by the Numbers” Racked.com [online] at https://www.racked.com/2018/6/5/17380662/size-numbers-average-woman-plus-market [Accessed on 5th.11.2018]
Grant, Robert (2010) “Contemporary Strategy Analysis” 7th edition, Wiley
Guilbert Kieran (2018) “No hiding place for slaves as Primark maps its suppliers” Reuters [online] at https://www.reuters.com/article/rights-workers-primark/no-hiding-place-for-slaves-as-primark-maps-its-suppliers-idUSL8N1PX5GB [Accessed on 6th.11.2018].
Mantor Cassidy (2018) “New California laws impact LA garment industry” Fashion Network [online] at https://us.fashionnetwork.com/news/New-California-laws-impact-LA-garment-industry,907148.html#.W-BSgzK-mQJ [Accessed on 5th.11.2018].
Primark (2018) “Planet” [online] at https://m.primark.com/en-us/our-ethics/planet-and-environment [Accessed on 5th.11.2018]
Shamir Shachar (2018) “How technology is changing the fashion industry” The Next Web [online] at https://thenextweb.com/contributors/2018/08/14/how-technology-is-changing-the-fashion-industry/ [Accessed on 5th.11.2018].
Statista (2018) “U.S Women’s Plus Size Apparel Market- Statistics and Facts” [online] at https://www.statista.com/topics/4834/women-s-plus-size-apparel-market-in-the-us/ [Accessed on 5th.11.2018].
Statista (2018a) “United States: Unemployment rate from 2007 to 2017” [online] at [Accessed on 5th.11.2018].
Statista (2018b) “Primark- Statistics & Facts” [online] at https://www.statista.com/topics/4684/primark/ [Accessed on 6th.11.2018]
Statista (2018c) “Primark’s revenue worldwide from financial year 2007 to 2017” [online] at https://www.statista.com/statistics/383785/primark-revenue-worldwide/ [Accessed on 6th.11.2018]
Textile Today (2018) “The impact of trade battle between US and China on apparel industry” [online] at https://www.textiletoday.com.bd/impact-trade-battle-us-china-apparel-industry/ [Accessed on 6th. 11. 2018].
The Irish Times (2018)”Primark’s fast fashion makes it fastest growing retailer in the US” [online] at https://www.irishtimes.com/business/retail-and-services/primark-s-fast-fashion-makes-it-fastest-growing-retailer-in-the-us-1.3585774 [Accessed on 6th.11.2018].
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