Primark Analysis of global

Strategy plan through

the growing economy,

India

Presented to Dr. Ricardo Vecchiato Student Id-K135939 Module –BS7575-International Business Environment Word Count-2917

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Table of Contents

Executive Summary--------------------------------------------------------2

Company Profile------------------------------------------------------------2

Market Analysis-------------------------------------------------------------3

Consumer Demand---------------------------------------------------------6

Competition------------------------------------------------------------------7

Company Outlook-----------------------------------------------------------8

Target Country-India-------------------------------------------------------8

Consumer Behaviour----------------------------------------------------- 10

Competition in India------------------------------------------------------ 10

Risk Factors-----------------------------------------------------------------12

Recommendations---------------------------------------------------------13

List of References----------------------------------------------------------14

Appendix-1------------------------------------------------------------------16

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Executive Summary

Associated British Food (ABF) is a variegated company having its business diversified in

the following market segments: Retail, sugar, agriculture, grocery and ingredients. The

company operates all its segments with an aim of increasing its value for the

shareholders there by closely monitoring and managing its processes. Each company

under ABF has its own strategy of decision making and holds its unique way of creating

value. Among all its business, the clothing retailing Primark is the major unit that has a

global expansion plan for 2015.Its entry point to the U.S market starts with opening

store in Boston by the end of 2015. Primark’s aim of global expansion should be

channelized to the Indian market where the retail industry growth is tremendous. India

being the home of the manufacturing unit of Primark is the key to its business

opportunities in the country. Other factors like low labour cost, FDI regulations and high

rate of expenditure on clothing contribute towards making India, a strong market for

Primark. This report will analyse the clothing market in a global perspective, the macro

factors of India and will discuss risks and recommendations of the proposed expansion

strategy plan to the new market.

Company profile

Primark, one of the largest clothing retailers in Europe, was founded in 1969 in the

Republic of Ireland. Headquartered at Dublin, it has 239 stores located in UK, Ireland,

Germany, Spain, the Netherlands, Portugal, Germany and Belgium and employs more

than 45,000 people globally. The company offers wide ranges of products: women’s

wear, men’s wear, children’s wear, footwear, accessories, homeware and

confectionaries. Primark’s business strategy is centred at its low price at high street and

up-to-the-minute fashion. This low price strategy is possible because of low investments

in advertisements, outsourcing production to low cost labour countries and by lowering

overhead costs. The apparel market share of Primark reached 0.3% in 2013 (Graph-1)

and the company had an increase of 22% in sales leading to a 44% profits (Associated

British Food, 2013).

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Graph-1 Primark’s market share

Source: Euro Monitor(2015)

It has achieved Earnings before Interest and Taxes (EBIT) of £258 million, £20 million

more than estimated. In the last 3 years, the Compound Annual Growth Rate (CAGR) of

the company is 18% more .The increase in sales and profits were driven by the like-for-

like growth, a 22% profit in their selling area, an increase in the gross margin because of

low price of raw material like cotton and a reduction of costs contribute to make the

brand the major company within the ABF group, thereby accounting 49% of the group

profits (Deutsche Bank AG, 2014). Primark’s business sense and strategy is to expand by

entering into new locations and opening new stores (Euro monitor International, 2011-

a). The company’s outlook is measured by its accelerating growth in their selling area

as the market is growing and is quite dynamic, with a forecast of 12% per annum

increase 4.5% in Germany ,3.6% in the UK and Spain, 2% in France and more than 1%

from others (Berenberg, 2014). A swot analysis on Primark displays the company’s

behaviour and operations in brief.(Appendix-1)

Market Analysis:

Global

In 2013, the global apparel retail industry had increased by 4% having the biggest

segment of 49% in women’s wear (Market Line, 2014).The Compound Annual growth

Rate (CAGR) for the market segments are displayed in the following table 1.1.

0.20 0.20

0.30 0.30 0.30

0.20 0.20 0.20

0.30 0.30

0.20 0.20

0.30

0.20

0.30

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

2009 2010 2011 2012 2013

Primark Market share

World World World

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Table 1.1 CAGR between 2010-2014 : Research Source -PR Newswire, 2014

The Americans are the market drivers for the retail industry holding 34.8% of the

market share. However, the apparel industry forecasts a growth in the CAGR in each

market in next 5 years (2014-2017) with steady increase in women’s wear of 3.8 % and

6.3% in men’s and kid’s wear (Market Line, 2014).The overall performance and

supplication of apparel industry has a deep interrelation with the economic

environment and its macro indicators which further has positive and negative

implications on the company and its environment. However, during the period of steady

economic growth, the industry also enjoys an increase in sales and profits. Nonetheless,

Primark’s business strategy of low cost fashion drives the supply of price-sensitive

demand of latest fashionable clothes. For example, in 2009, during the financial crisis in

European zone, the company profits were high by 10%. The increment in sales was

because of the customers who wanted to remain fashionable with low disposal (The

Guardian, 2010). In 2014, the Global economy continued to recover from the financial

crises predicting a global prominence of 3.7% for 2015. There is also an improvement in

economic growth in the United States with forecast of 3.5% by 2015 which will be

beneficial for the European region, Central America Mexico and few parts of Caribbean.

The overall economic recovery is shown in the following graph -2 (IMF, 2014).

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Graph 2: GDP % Annual Growth in the U.S, Europe and Latin America

Source: IMF (2014).

In apparel industry, the supply cost is majorly driven by the prices of fabric, mainly

cotton. Cotton is considered as one of the main ingredients in clothes and the prices of

this commodity has a major impact on the cost structure of apparels. The price

fluctuations in cotton will have direct implications on company’s sales and profits. In

2011, the cotton prices grew considerably higher than other years (Graph 3). In context

to this, Primark still continued its strategy of low cost clothing and refused to

implement increase in the price of its products due to which the operating profit fell by

9.4%. Though it had a negative impact on its sales which could be seen in company’s

overall profit, this strategy allowed Primark to maintain its customer loyalty and

credibility (Euro monitor International, 2011-a).

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Graph 3 Growth in cotton price from 2009 to 2014 .Source: Euro monitor International (2015)

These days, cotton is being replaced by other fabrics like Lycra. This trend is lowering

the demand of cotton and thereby increasing the pressure on its prices, which is

predicted to decrease by 3% by the end of this year which can be seen in the following

graph 4.

Graph 4 Historical price of cotton from 2000 -2016.Research Source: Cotton Price: Euro monitor

International from International Monetary Fund (IMF)

Consumer Demand

The young consumers who want to be up to date with the latest fashion are the main

target for Primark .The latest trend in the UK market is the combination of fast fashion

with high quality footwear and accessories. The companies need is to keep their stock

updated and must be quick to respond to the changing market trend else they might

lose the market share. (Euro monitor International, 2011-a). Moreover there are

20092010

20112012

20132014

0.00

50.00

100.00

150.00

200.00

World

Growth in Cotton Price

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consumers who look for multiple brands which can offer wide range of products under

one roof.

It could be argued that in 2013, after the Bangladesh’s Rana Plaza tragedy, where more

than 1200 people died (Telegraph, 2013), there was an articulation in the apparel

especially in the ‘cheap-fast fashion’ brands. This event saw a growth in more

‘conscious’ customers who demanded a fair and transparent supply chain of clothes and

footprints of the company. The introduction the Higg Index 2.0 in December 2013

changed the attitude of companies. The Higg Index is a standard protocol for the

garment companies for self-assessment and to maintain the environmental and social

sustainability throughout the supply chain. Companies who couldn’t adapt to these

standards might affect their reputation and even lose clients (Barrie, 2014).

Market Competition

Even though there is a trend, as a pattern of globalization, for commoditization of

products, the apparel Industry is a pulverized market. This standardization is caused

mainly due to a decline in regional clothing choice and economic growth. Few

companies are outsourcing their production to low cost labour regions like India and

Bangladesh, with the aim of achieving high efficiencies with low cost (Hilger, 2015). In

spite of this strategy, the apparel market still remains fragmented. The companies

target to customize their products to match the taste of each region and their culture,

and this is why a global simulation of fashion brand doesn’t exist unlike the sport

brands like Nike and Adidas. The companies have to dissection their analysis in each

region and need to create a platform that allows them to operate in silos. (Euro monitor

International, 2011-a).

Primark’s low price strategy is its competitive advantage. For example, Primark has

snapped M&S has in the area for which it was once most famous: knickers. A five-pack

of briefs in M&S is £12 but in Primark it is £4. According to the retail market research

group Verdict,’’ nothing in the store costs more than £17’’. Primark also operates on its

secret ingredient, THE CATWALK. Over the past few years, Primark has been influenced

by the catwalk. It offers the ‘’very recognisable from the trends you are seeing on the

catwalk’’ at student budget. (Telegraph, 2014).

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Even though different brands hold different strategies, Primark face the main

competition from H&M, Next and Zara. Primark’s like for like growth has been steadily

high with 48% cumulative growth whereas the performance of Zara is 38%, H&M is

24% and Next is -29% (Berenberg, 2014). Zara and H&M have already spread their

wings in new markets by opening stores in 47 and 88 markets respectively(Graph-5)

Graph-5- like for like sales Growth

Primark Outlook:

Primark credence on the European market and the increase in revenues has encouraged

the company to lower its dependence on the continent and create an expansion plan to

enter the US market. By the end of 2015, Primark will be launching its first store in

Boston. The company has also announced, by the end of 2016, there will be 8 stores

opening in the North east Coast(Deutsche Bank AG, 2013).Currently, Primark’s main

market is Europe but its planning to open new warehouses in the United states to

ensure and preserve their strategy of catwalk fashion at lower price(Rankin, 2014).

Target country: India

In general economic terms, India’s economy will see a stable and long-term economic

growth by 2015, driven by the profitable gains in export and policy reformations. This

will have an impact in managing the inflation rate. The year 2014 witnessed dramatic

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economic changes when the real GDP increased by 6.6% from 5.4% and this growth had

surpassed 6% since the 2010-2011 fiscal year with the Inflation of 6.4%.

The same year had growth in the real value of private final consumption by 4.5% and is

expected to grow by 5.2% by 2015. (Euro Monitor 2015).

India should be an attractive market for Primark and represents a good business

investment given the country is a growing economy with per capita which generates

jobs for the people entering the labour force, and offers a very low labour cost

compared to china and Bangladesh. India’s labour cost is 18% lower than china

(Reuters, 2014). In 2012, India was the world’s 9th largest consumer market and by

2015, India‘s consumer’s market could match that of Italy’s and will be approaching

France by 2020(Euro Monitor 2015).The Annu

al Disposal Income of the country has increased steadily at the rate of 20% from 2009.

India: Primark’s Manufacturing Unit:

Primark’s main manufacturing unit is setup in southern part of India, Tamilnadu. This

key factor will help the company to expand its business quickly and at cheaper cost as

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the shipment will be internal. Other than this, the customization could be easily adapted

as the labourer are well aware of the market trends and clothing material, size and

design

Consumer behaviour in India:

India has various market segments majorly comprising of the young population, age

group between 18 to 29 and middle youth which is 30 to 44 years. These two set of

consumers has a modern lifestyle who are engaged either in college or the working

population and tends to remain fashionable and spends quite decent amount of their

clothing and footwear. The following graph 7 shows the expenditure growth in India

and the growth of population.

Graph -7: Young Adults and Middle Youth Population segment in India. The consumer expenditure

on clothing and footwear in India

The population of young adults has grown from 2.6 million from 2010 to 2.75 million by

2015 and also the consumer expenditure of clothing and footwear has increased

dramatically from 2010 with 3000 million INR to 4.5000 million INR by 2015 and is still

likely to grow as the population of the young adults and middle youth will reach 2.8

million by 2016.

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Competition in India:

The Indian apparel and footwear industry had no major impact of the global economic

slowdown. The growth continued to real a double digit profit in 2013 which was

supported by the growing presence of established brands of all formats. The apparel

industry in India has increased from 2 million in2010 to 3.25 million in 2014. It is

estimated to further increase by 4.25 million by 2016(Graph-8)

Graph -8 Indian Apparel Industry

Source: IMF 2015

The Indian market is flooded with lots of established apparel brands. Companies like

Aditya Birla group and Future groups have high market strength compared to others.

The graph -9below shows the Indian market shares of different brands.Primark’s

competition will be with the other established brand like Aditya Birla group, Future

group and Biba, ITC group etc. (Financial Times, 2015) (Graph-9).

0.00

500,000.00

1,000,000.00

1,500,000.00

2,000,000.00

2,500,000.00

3,000,000.00

3,500,000.00

4,000,000.00

4,500,000.00

India

Mar

ket

Size

s |

Ret

ail V

alu

e R

SP |

INR

mn

|

Cu

rren

t P

rice

s

Years

Indian Apparel Industry

2010 2011 2012 2013 2014 2015 2016

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Graph-9 Indian Market

Source: Euro monitor International from International Monetary Fund (IMF)

India: Growing market for Foreign Brands

In 2013, the government policies were redesigned to support the growth of apparel and footwear industry like 100% foreign direct investment in single-brand retailing and also clearing apparel based licenses. This has encouraged many foreign brands to expand their markets in India For example:

US based retail shop H&M has recently got the clearance for FIPB (Foreign Investment Policy and Promotion Board of India) for an investment of 7 billion INR and the company is willing to open its store by this year (Fortune, 2015).

A Japanese apparel retailer Uniqlo is investing 105 billion INR and the stores and aims to opens the stores by 2016(Financial Times, 2015)

Massimo Dutti aims to open 10 stores by 2017 with an investment of 100 million INR

Risk factors:

The Consumer Demand: The change in taste of the local consumers for the

foreign brand is unguaranteed.

Political instability and Foreign Investment policy: India is a politically

unstable state which can impact the foreign trades and investment policies. The

import traffics might rise since the country joined the WTO there by reducing the

trade barriers.

Return on investments: The Company might now get quick response and

return from the market. It needs to establish itself among the leading brands.

Tough competition from local brands: Primark might face a tough competition

from the local brands like Westside, pantaloons and Aditya Birla.

0.00 1.00 2.00 3.00 4.00 5.00 6.00

Aditya Birla Group

Relaxo Footwear Ltd

Celebrity Fashions Pvt Ltd

Levi Strauss & Co

Liberty Shoes Ltd

Khadim India Ltd

Dollar Industries Ltd

Private Label

Indian Market

2008 2009 2010 2011 2012 2013

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Primark’s strategy of less advertisements: The Indian consumers are more

biased and inclined towards the advertised products. They rely more on the

feedback of the product rather than trying themselves.

Customization in clothing to fit Indian Consumers: The Indians come in

various sizes and structures. The sizes in Europe are different than that of India.

For example: India’s clothing size ranges from small(s) to X, whereas in Europe,

the sizes are numbered from 6, 8, 10 – 20.

Recommendations:

Short term:

Growth in terms of expansion: The Company should target its expansion plan by setting up its stores initially in the big metro cities like Mumbai and New Delhi.

Marketing and Adverting: India consumers rely more on the advertisements and marketing. Primark should initially advertise their company even though a low scale.

Medium term plans:

Build a strong supply chain network: Primark already has its manufacturing units in the south of India (Tirupur, Tamilnadu). It only needs to create a good relationship with the local suppliers to have a smooth processing in the supply chain.

Customize the design and size of the clothes: Primark needs to adapt to the local designs in order to increase its sales and profits and reach to wide audience. It will not be a big challenge for the company to customize the changes as the manufacturing units are in the south of India.

Long term:

Create online shopping experience: Indian consumers are very inclined towards online shopping. Primark should create online shopping experience for its Indian Audiences. The following graphs shows the growth of Internet retailers in India.

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Graph-11 Internet Retail in India

Source: Retailing: Euro monitor from trade sources/national statistics

Involve in social causes: Primark should expand its ethics and culture in India

as well. Participating in social events will help the company to win hearts of its

consumers.

Creating strong supply chain networks with new Suppliers will help the

company to expand it branches in other metro cities like Chennai, Bangalore

Hyderabad and Kolkata

List of References:

Associated British Food. (2014) Annual Report 2014 [Online] Available at:

http://www.abf.co.uk/investorrelations/annual_report_2013/operating_review/retail

(Accessed: 08 February 2015).

Euromonitor International (2011-a), ‘Associated British Food PLC (ABF) in apparel (World)’

[Online] Available at: http://www.portal.euromonitor.com (Accessed: 08 February 2015).

Euromonitor International, (2013- c) ‘Annual Gross Income. [Online] Available at:

http://www.portal.euromonitor.com (Accessed: 08 February 2015).

Euromonitor International, (2014- e) ‘Income: Annual Disposal Income [Online]. Available at:

http://www.portal.euromonitor.com (Accessed: 08 February 2015).

2% 3% 4% 6%

9%

17%

24%

35%

India Internet Retailing

2009

2010

2011

2012

2013

2014

2015

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International Monetary Fund (2014) ‘World Economic Outlook- October 2014’ [Online]

Available at: http://www.imf.org/external/pubs/ft/weo/2014/02/ (Accessed: 08 February

2015).

Josephs, L; Wexler, A (2014) ‘Cotton Futures Prices at Lowest in Five Years on Demand

Worries’ Wall Street Journal [Online] Available at: http://online.wsj.com/articles/cotton-

futures-drop-to-25-month-low-1406213540 (Accessed: 10 February 2015)

Market Line (2014-a) ‘Apparel Retail Industry Profile: India 2014’, Business Source Premier,

EBSCOhost, [Online] Available at:

http://search.ebscohost.com.ezproxy.kingston.ac.uk/login.aspx?direct=true&db=buh&AN=9

8014839&site=ehost-live (Accessed: 18 February 2015).

Market Line (2014-b) ‘Global Apparel Retail Industry Profile’, Business Source Premier,

EBSCOhost [Online] Available at:

http://web.a.ebscohost.com.ezproxy.kingston.ac.uk/ehost/pdfviewer/pdfviewer?sid=d7ae2

0ac-e2db-46ab-8068-22adcad7b34f%40sessionmgr4003&vid=6&hid=4106 (Accessed: 18

February 2015).

PR Newswire, (2014) ‘Global Children’s wear, Men’s & Women’s wear Market Size and

Forecast Reports’ PR Newswire Europe Including UK Disclose. [Online] Available at:

http://ezproxy.kingston.ac.uk/docview/1547307294?accountid=14557 (Accessed: 18

February 2015).

Rankin, J. (2014) ‘Primark to enter US market with Boston store’. The Guardian, 23 April

[Online] Available at: http://www.theguardian.com/business/2014/apr/23/primark-retail-

us-market-boston (Accessed: 20 February 2015).

Reuters (2013) ‘UPDATE 1- Indi’s hourly wages now lower than China’s-study’ Reuters, 4

April, [Online] Available at: http://uk.reuters.com/article/2013/04/04/economy-India-

wages-idUSL2N0CR1TY20130404 (Accessed: 20 February 2015).

Berenberg. (2013) ‘Capital Market , ABF. [Online] Available at:

http://www.berenberg.de/fileadmin/user_upload/berenberg2013/02_Investment_Banking/

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Equity_Research/Capital_Markets_Equity_Research_-_Associated_British_Foods.pdf

(Accessed: 10 October 2014).

Rankin, J. (2014) ‘Primark to open store in Boston. The Guardian, 23 April [Online] Available

at: http://www.theguardian.com/business/2014/apr/23/primark-retail-us-market-boston

(Accessed: 12 February 2015).

Foreign Direct Investment (2015) ‘FDI recent policies’ [Online] Available at:

http://www.makeinindia.com/policy/foreign-direct-investment/ (Accessed: 22 February

2015).

FDI (2015)’FDI policies’ [Online] Available at:

http://www.rbi.org.in/scripts/FAQView.aspx?Id=26 (Accessed: 22 February 2015)

Primark Manufacturing Units(2015)’Primark Manufacturing Units in India’[Online]Available

at : http://www.theguardian.com/world/2008/jun/22/india.humanrights (Accessed:23

February 2015)

Appendix-1 SWOT Analysis of Primark

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