Primark to become a major European force
A new strategic report by retail analysts Verdict Research finds that clothing retailers have reacted to the recession with understated fashion ranges, cut backs on inventory and a reliance on sales.
In combination with anxious and unsettled clothing specialists, depressed consumer confidence and spending levels (due to the impact of a looming unemployment crisis and a dearth of credit availability) will conspire to produce one of the worst years for the pan-European clothing sector on record; Verdict forecasts a 5.2% decline to €274billion for 2009). The one sector Verdict expects to outperform is the value segment with around €50bn in sales in 2008.
As overall clothing volumes are down, ‘value’ is the growing segment in a declining sector. Retail propositions with a strong and deep value focus will outperform the rest of the market over the next five years and Verdict expects great times for the majority of European value players (H&M, Primark, Kiabi). Moreover, there is currently a massive opportunity on high streets right across the EU as department stores are retrenching – with the implosion of the likes of Arcandor and Woolworths both in Germany and the UK.
Value clothing is also a sector where foreign expansion is very much on the cards in contrast to other sectors where entrenchment is currently the name of the game. On the one hand CEE countries are an enticing proposition as purchasing power remains low, meaning low price points for clothing products and growth is expected to pick up post recession. On the other, in value clothing terms the more mature markets of the West are also quite underdeveloped. Hence, the UK apart (even though the country has just attracted another player, Italy’s OVS), the rest of Europe is still all to play for, despite the non specialists already active there, especially the grocers and discounters.
Daniel Lucht, Verdict Research senior analyst and co–author of the report comments: “As Tesco’s halo has slipped somewhat in the recession, Ireland’s Primark is set to take up the torch of sharpest and most feared retailer from the British Isles.“
A superb business model, strong growth, outstanding benchmarks and sales densities have struck fear into the hearts of its European rivals from C&A to Kiabi and ultimately to H&M. The fashionability and the focus on a young demographic are Primark’s unique selling points and something much of the competition obviously lacks – with perhaps the exception of H&M. Furthermore, this focus is exactly what consumers across the EU are demanding, as Primark’s going from strength to strength on the continent and the situation in the UK clothing market has amply demonstrated in recent years.
The harsh lesson UK fashion multiples had to learn in recent years stands to be repeated across the continent; Spain is already taking to the Primark concept by storm, even though the country is in a dire mess economically with the sharpest GDP decline in years. Anecdotal evidence from the Netherlands and Portugal is hugely encouraging and the store opening in Bremen has led to C&A throwing in the towel and giving up on Avanti in its core German market.
Verdict believes that Kik and Takko can evolve into the most interesting competitors to Primark for the young value fashion crown, if they rise to the occasion and exploit the opportunity to the hilt. “Their store estates will need an urgent overhaul and ranges need to be refreshed and made more fashionable to move the offer from a pure discount proposition to something more sophisticated along the lines of Primark and H&M,” Mr. Lucht says.
