Eyes on US, Primark considers suppliers in Central America

LONDON (Reuters) – Convinced that it can break into the $ 300 billion US clothing and footwear market, where many other foreign retailers have failed, Britain's Primark is poised to increase its bet on the country. ensuring new sources of fast fashion in Central America.

Primark, whose garments at unbeatable prices have taken over British buyers, opened in Boston in 2015 and now has nine stores in the northeast, all serviced by a warehouse in Pennsylvania still serve three times more stores.

He has invested 250 million pounds ($ 313 million) in the United States, achieved a critical mass of sales and has four years of education in a crowded market struggling to survive the rapid growth of trade electronic. .

Associated British Foods, a conglomerate listed in London, is now the owner.ABF.L), is convinced that Primark's store-by-shop disciplined approach can succeed in a country that has been a graveyard for some of Britain's largest retailers, including Marks & Spencer, Tesco and more recently, Philip Green's Topshop.

"I think the US will be a winner for Primark," John Bason, chief financial officer of AB Foods, told Reuters.

This confidence is reinforced by the desire to create a supply chain closer to the American market.

Primark currently buys all of its clothing in the United States from its traditional supplier countries of China, India, Bangladesh, Cambodia, Vietnam and Turkey – a costly exercise as the stock is transported to the Pacific by the Panama Canal and along the east coast of the United States.

The plan now is to involve suppliers from Central America, such as Guatemala, Costa Rica and Mexico.

"We're getting there now, with the level of sales we already have in the United States," said Bason, a veteran of AB Foods for 20 years.

"Certainly, I think the Central American countries would really start to move on."

Founded by the late Arthur Ryan in Dublin in 1969, Primark operates in 373 stores in 12 countries, generating £ 7.5 billion and making a profit of £ 843 million in its 2017-2018 fiscal year. nearly four times more than in 10 years – all achieved without venturing into online shopping.

Primark, the UK's largest fashion retailer by the number of items sold, has left its mark on the price, selling t-shirts and swimsuits just 5 kilos – its customers often being responsible for brown brand paper bags. These savings make an online offer untenable.

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Primark contributes more than half of the total profits of its parent company, which also holds major arms in the sugar and grocery sector with a market value of 18 billion pounds.

Some analysts believe that the combination of value, fashion, and breadth of Primark's product line means that it could create as much activity as the United States in the next decade.

This would threaten fashion retailers such as Old Navy, American Eagle and Target on its own property and place it against Swedish H & M, which trades in 578 stores in the United States, and in Spain, Inditex, which has 102 stores.

Primark's tenth US store will open this fall at the American Dream in New Jersey and Florida in 2020, the first outside the Northeast Corridor. Contracts were also exchanged at a Chicago store.

Stores in densely populated cities on the east coast, in busy locations, will follow.

Bason said a downsizing decision at three Primark stores – Freehold Raceway in New Jersey, Danbury Fair in Connecticut and King of Prussia in Pennsylvania – was essential to refine his American model.

Sales levels were maintained thanks to a smaller footprint: sales density increased, while operating costs decreased, resulting in improved profitability. Conversely, the profitability of the Boston store has been increased by increasing its size.

"If you're talking about learning, that was really the key, it's the most important," Bason said.

"If you add more stores and each of them is profitable, the overall profitability will increase … now you are in a virtuous circle."

AB Foods said this month that Primark is experiencing strong sales growth in the United States and is forecasting a significantly reduced operating loss for 2018-19, reflecting the deliberate underutilization of its warehouse.

"At some point … you would then install a second warehouse somewhere else, strategically placed, and start adding stores from that location," Bason said, noting that any move to California would require a warehouse at the same time. west of the Rockies.

"What's important to Primark is getting to know each market – it's still Arthur's mantra."