Can Fashion Retailers Still Survive Without an E-commerce Platform? Primark Thinks So
Hello and welcome to the 30th issue of moderated, a newsletter created to dive into insights and phenomenons in the Fashion Industry. It also has a curation and summary of the most talked last week’s events of the industry, offering further readings for more details.
If you are new here, welcome! I hope I can somehow help you to keep up with the fast-paced Fashion Industry.
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On this week’s moderated, I tried to understand why, despite the impact of lockdown, Primark insists on not having an e-commerce platform, and how they convinced me this is the best strategy for their business now. I also explored some other fashion brands that are still not selling online.
But before jumping into the main article, check the last week’s recap of the Fashion Industry.
Last Week’s Recap
Danish Mink Fur Industry Affected By New Strain of Coronavirus
A new mutated coronavirus strain was found in minks and people in the north of Denmark. Health authorities in the country already implemented a new and tougher lockdown in the region. On top of, the Danish government decided to cull up to 17 million minks to avoid further dissemination of this new strain of coronavirus. Denmark is Europe’s largest producer and exporter of mink fur. Therefore, this new decision of killing all minks may cost up to US$800 million for the industry. The decision had mixed feelings. On one side, mink’s farm owners are struggling to understand the financial impact they are facing while recognizing the importance of containing the virus. On the other side, animal rights activists are celebrating and believe this can be an opportunity to end the fur industry.
You can read more about it in this article from the Business of Fashion.
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Farfetch-Alibaba- Richemont Alliance to Conquer Online Chinese Luxury Market
Chinese tech giant Alibaba and Swiss fashion group Richemont invested US$1.1 billion in the online fashion retailer Farfetch. The deal has the goal of expanding the companies' presence in the fast-growing luxury goods market in China. As part of the partnership, Farfetch will assist fashion brands in launching their own online stores on Alibaba’s Tmall Luxury Pavillion and Tmall Global. These platforms give luxury brands control over everything, such as pricing, aesthetics, and operation of their online stores. On top of that, both platforms already attract millions of Chinese shoppers. The urgency of this new alliance was also due to travel restrictions imposed by the pandemic. In this scenario, the Chinese customers are finding new ways to spend their money on luxury goods home instead of during trips to Europe and the US. As Farfetch chief executive José Neves explained to the Financial Times:
“We are bringing the fashion and luxury that Chinese used to shop for in Europe into their favourite app [Alibaba]. Covid-19 is spurring the repatriation of sales to China, and we believe that online will take a very big share of that.”
Separately, Artemis, the holding company of billionaire François-Henri Pinault who owns luxury group Kering, is also planning on betting more on Farfectch by buying US$50 million in shares. The whole scenario made Farfecth shares increased by 13% in early trade in New York.
To read more about the joint venture, check the full article of Financial Times.
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VF Company Buys Supreme for US$2.1 billion
Yesterday, VF Company, which owns brands such as Vans, Dickies, Timberland, and The North Face, bought the skateboard and streetwear brand Supreme. The acquisition cost US$2.1 billion and is set to be completed by the end of this year. Both companies announced that the purchase will allow Supreme to leverage VF’s expertise and resources to maximize growth and achieve its goal of doubling its sales up to US$1 billion a year. VF stated that Supreme offers a "deeper access to attractive consumer segments that apply to many of VF's existing brands."
Rating La Mode - Next In Fashion
I was never a big lover of ‘Project Runway’. It was fun to watch sometimes but the challenges were too megalomaniac, involving situations that would never happen to an actual fashion designer. Then, at the beginning of this year, Netflix launched its own version of fashion reality show competition called ‘Next in Fashion’ and I loooved it. Unfortunately, the reality has only one season and Netflix already announced it wasn’t renewed to a second season. Regardless, it is worth the watch! The show is presented by Tan France e Alexa Chung and each episode has a different - realistic - challenge focusing on one specific fashion theme. The competitors are incredibly talented and both finalists made AMAZING collections. It’s a true anthropological experience in the world of fashion design that I definitely recommend to watch unpretentiously.
The full first - and sadly only - season of Next in Fashion is available on Netflix.
Can Fashion Retailers Still Survive Without an E-commerce Platform?
Primark Thinks So
Last week I bought a few fashion items online. I am still getting used to shopping online. To be honest, whenever stores are open and Covid-19 risks are gone, I think I am going back to my old habits of shopping brick and mortar. However, due to the pandemic, I had to get more comfortable with buying online and so did everyone that wanted to purchase fashion this year. That said, I wonder: does everyone that had to change their shopping habits during 2020 will, like me, go back to shopping brick and mortar once the pandemic is over, or did the fashion retail experience shifted for good to being largely e-commerce based?
I won’t be able to answer this question because the truth is that no one really knows how the post-pandemic fashion retail will be. Yet, most specialists and companies are predicting that e-commerce is a path with no return – and they are investing hard in it. I said most and not all because, despite everything that happened in 2020, there are still those rare gems that keep putting their cards on physical stores. This week, we are talking about one of these gems: Primark. This fast-fashion retailer is surviving 2020 without an e-commerce platform and, as of now, is not planning to create one. If you think they are nuts and outdate for not entering the online shopping scene, they will try to convince otherwise, and they not only have a good point, but they are not alone in this decision. After reading this article, I would love to know your opinion: do you believe every fashion retailer needs an e-commerce platform to keep up with the times?
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The Reasons Why Primark Never Had an E-commerce
Before I jump into the reasons, I have a few things to take out of the way. I am not a Primark fan as a consumer. On the contrary, I haven’t shopped anything there - besides socks – since 2015, and I honestly don’t even buy socks there anymore. From a sustainability perspective, I am actually against what they stand for. However, from a business standpoint, I can’t help but admire their strategy and how they implement it. Now that we established that, let’s get into what Primark is and what is their business model.
Primark is a fast-fashion retailer founded in Dublin in 1969. A little interesting fact, the company was originally called Penneys, but when it expanded out of Ireland for the first time in 1974, opening a store in the UK, the retailer decided to change the name to Primark to avoid legal issues with the US retailer J.C. Penney. Until nowadays, the company is called Penneys in Ireland, while it was renamed to Primark everywhere else. When I say everywhere else, I mean that Primark is present in 13 countries across Europe and America with around 380 stores. Besides apparel, Primark also sells homeware and beauty products. The bottom line, Primark is an extremely successful high street retailer.
To understand how Primark became such a successful business, the most important two things to know about it are: it offers low prices and lots of fashion options. This combination of competing price-wise and also having an overwhelmingly large number of fashion items to choose from how Primark conquered their customers. As the journalist Jeroen Kraaijenbrink perfectly explained in a Forbes article about Primark:
“At the bottom line, they sell the kid-in-the-candy-store feeling, the Oh-My-God-I-can-buy-all-of-this-and-still-have-money-left experience. That is their value proposition and that is why they are successful.”
This is the DNA of Primark and all its operations are perfectly aligned with this strategy, from purchasing and stock management to store design. Everything the company does is to create this kid-in-the-candy-store experience - and it works.
Now I ask you, could they create this same experience online? Boohoo for example could be seen more or less as an e-commerce version of Primark – low prices and lots of options - but as someone that has been to both, the experience they offer is completely different. It becomes more difficult to create this atmosphere online. On e-commerce, having too may products available can sometimes become a burden: you get lost in the options, you don’t find what you were looking for, you can’t compare products the same way you do at the store, you can’t grab, try and then decide to leave with it or not. It is not the same type of experience.
But let’s say Primark could create the same kid-in-the-candy-store experience online. It would still be extremely challenging to keep the business profitable with the extremely low prices Primark works with. Running e-commerce strongly affects distribution costs. Instead of sending 200 pieces to one store where the clients will go to buy, Primark would have to ship just one or a few products to one customer per time. Then the customer decides to return the product by shipping it back, which happens on average with 3 out of 4 apparel products bought online, therefore increasing costs even more. The whole logistics becomes more expensive and this would eventually affect Primark’s competitive pricing that not even Boohoo can beat.
This combination of distribution costs and the conviction on its store experience makes Primark want to stay with the brick and mortar model – and before the pandemic that was working quite well for the company. Before the pandemic, the low-cost retailer was an exception in the troubled retail landscape. While competitors suffered to keep up with the digital disruption that shifted the fashion market in recent years, Primark kept growing fast. Between 2014 and 2019, its sales increased by 57%. If it was last year, I would only say that Primark is an example for many businesses of how knowing your DNA and sticking to it can create a successful company. But it is 2020, and the pandemic happened, and everything changed. But Primark still thinks they don’t need to change and as much as this is hard to say…I think I agree with them (from a business standpoint).
Of course, Primark suffered a lot during the lockdowns implemented during the Covid-19 pandemic. The retailer could not be worse positioned for a global pandemic: it has no e-commerce to ease the sales impact of lockdown in a sector that throughout the year had many bankruptcies and restructurings. This disadvantageous position during lockdown cost Primark a £2 billion loss in sales and £650 million loss in profit. For the low-cost retailer’s fiscal year ending on September 12, its revenue was down 24% from the previous year, while profit dropped 63% year-on-year.
However, around May, when lockdown measures around Europe were lifted and stores reopened, Primark bounced back to sales way better than expected. While competitors had a hard time bringing their customers back to stores, Primark had queues in front of its shops. Since the retailer started reopening its stores in May, it has generated around £2 billion. According to AB Foods CEO and executive director George Garfield Weston, half of Primark’s core consumers bought nothing online during the lockdown. For the Citibank analyst Adam Cochrane, this lack of access to Primark during lockdown is what created a “pent-up demand” that helped driving sales whenever stores reopened. As expected, sales were still lower than normal, around 15% since the end of lockdown, which is roughly aligned with competitors such as Zara and H&M. However these competitors benefitted from online sales, while Primark didn’t, which kind of proves their point of not needing e-commerce.
The problem is that now, the UK and many countries around Europe are re-implementing lockdown measures due to a second wave of the Covid-19 virus. Primark already stated that it will lose around £375 million in sales with second lockdowns, especially because the holiday sales season started. However, the company is prepared to embrace the consequences of not having an e-commerce platform and it insists it does not need one.
“We couldn't do it properly. It's not something the businesses of scale like Primark can snatch at. When we are open, we trade very, very well, and we trade our way out of the consequences of having our stores closed,” explained Weston.
Primark’s spokespeople reassured the company is prepared for a second lockdown and even though it will have looses, the recovery is coming once the situation normalizes. The thing is that normalizing doesn’t necessarily means going back to how it was before, but maybe going forward to the infamous “new normal”. According to specialists and trend forecasters, this new normal will have e-commerce in the centre of the fashion industry. A new report by BoF and McKinsey & Company revealed that the European fashion industry’s e-commerce penetration rose from 16% of total sales in January to 29% in August, the equivalent of six years’ growth. Companies such as Zara and H&M reacted to these data and projections and already announced the closure of hundreds of stores in 2021 to focus on e-commerce.
Then, against the mainstream, Primark insists on not going through the same path. Actually, in recent years, the low-cost retailer has invested a lot of money into upgrading its in-store experience – which until 2020 had been paying off. At this point I believe it became clear, Primark has conviction in their business model and for them, the Covid-19 was just a bump on their way. You won't be seeing Primark launching its e-commerce very soon.
The only thing that I can’t get off of my mind is that Victoria’s Secret was also sure about their brand DNA and positioning, and even though everyone around changed, they decided to remain the same. Well, we all saw how that ended up for them (if you don’t, spoiler: not well). It’s important to be aligned with your business strategy, but it is also important that the strategy evolves with the times. I am not saying Primark needs e-commerce, they actually convinced me they don’t, but they should definitely keep an eye on the market, because one day, maybe, their strategy won’t work as well anymore. In other words, just because it is working now and it has worked for a while, it doesn’t mean it will work forever. Businesses shouldn’t get cocky and believe they have all the answers already, because, after a while, the questions change.
And I can’t finish this article without mentioning a new question new generations have been asking the fashion retailers they buy from: who made my clothes? The business model of Primark works in the format of fast-fashion. New collections every week, very cheap production and high turnover – everything sustainability movements are against. Primark was even involved in many scandals about sketchy supply chain and underpaid workers. At the beginning of the pandemic, the retailer suffered a backlash after deciding to cancel all orders without paying suppliers (something their PR already dealt with and they reverted the decision). People still looking the other way because they want to pay cheap for clothes, especially now that we are entering a major financial crisis due to the impact of Covid-19. Thus, for now, Primark is fine. However, this can change and I wonder if Primark has a plan B for that.
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Primark Is Not Alone In Not Wanting an E-commerce Platform
Going back to having an online platform, Primark is not alone in believing they don’t need one. Chanel, for example, barely has an e-commerce platform. The French luxury label does sell sunglasses, fragrances, and makeup online, but clothes, bags, shoes, and jewellery, that make up the greater part of its revenue, are not available to be bought online. “I’m not sure that e-commerce is necessarily the way to connect to younger generations,” stated Pavlovsky, Chanel’s president of fashion.
Chanel and Primark are only two examples of some other survivors of the almost-exclusively brick and mortar model. The luxury and the watch sectors are probably the slower to embrace e-commerce in the fashion industry…but even for those, the majority of brands already gave in to the pressure (especially when lockdowns started to be imposed around the world). However, when it comes to high street retailers, I couldn’t think about any other example besides Primark. The low-cost chain is a true exception in the fast fashion retail industry, and to be honest: Primark convinced me that not being online is the best decision for its business for now. I just wouldn’t get too comfortable in that position.
As much as I won’t be buying at Primark, I can’t wait to go back to physical stores. I prefer the brick and mortar experience way more than shopping online. Once this pandemic is over, from my standpoint as a consumer, I don’t need the brands I love to have an e-commerce platform (even though I think they all have). I do believe for the majority it is important to keep up with competitors, but some business models are an exception, like Primark and Chanel, and these maybe don’t necessarily need it to be successful. Now let me know what do you think. Do you believe every fashion retailer needs an e-commerce platform to keep up with the times?
Thanks for reading this week’s moderated and next Tuesday I will be back with more.
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