Business Environment and Strategic Management of Primark - Essay Example

1. Introduction Founded in 1969, Primark is an Irish clothing brand that has over 254 retail stores around the globe in countries such as, United Kingdom, Spain, Germany, Ireland, Netherlands, Portugal or Belgium. Primark is the subsidiary of the Associated British Foods Plc. (ABF) with its headquarters in Dublin (Shawcross, 2014). Primark is considered as one of the most important “fast fashion” leaders in the United Kingdom’s retailing industry. The company’s notable key points is based on the production of the large volume of the clothing and selling them at a low price. Through its major divisions, Primark is focused on the expansion especially on the clothing lines not only in the Ireland, but also in different parts of the world (Shawcross, 2014). In the next few months, the company plans to add a further 41 stores with an approximate total investment of 700 million pounds. Among the new stores that were recently added include; Dundrum Town Centre and Dundalk (Ireland), Cardiff, Oxford, Hull, and Sutton (Choi et al., 2013). Primark’s product categories include the ladies wear, children’s wear, men’s wear, lingerie, cosmetics, fashion accessories, and the home products. Primarily Primark’s merchandise is made especially for its own brands, but it also stocks other products from other recognised (well known) brands like the Disney, Haribo sweets, Warner Brothers, and Nivea. The company’s apparel products lines typically showcase simple designs and fabrics in the popular sizes. Primark usually launches its stores in the high street locations and most of its products lines are usually stocked in bulk at every location. Its main competitors are BHS, Marks and Spencer, John Lewis, George at ASDA, Debenhams, and TK Max (Jackson, 2007). Recognised globally for its quality in apparels and clothing at the budget prices, the company provides clothing for all sizes, ages, and sexes with different department for the household goods (Kotler, 2013). Its success is largely attributed to a highly organised business structures that provides its customers with what they need at within a reasonable prices. Primark’s cost leadership means that the company’s market research team are usually on the pulse of the fashion changes by providing products that are similar to its rival companies quickly. The majority of the company’s sources of supply is in the overseas countries such as China, India, Bangladesh, Philippines and Turkey (Kotler, 2013). The company has developed the computerised customs clearance, the dedicated warehousing and the distribution of services in order to support the individual stores and facilitate the stock control so as to ensure the immediate sales analysis. In the financial year 2013, Primark’s total sales experienced a significant increase by 22% while the like-for-like sales rose by 5%. This remarkable performance was key to 13% increase in the full year pre-tax profit to the 1.1 billion pounds. Similarly, in the period ending 2014, Primark took the market share and enjoyed the underlying sales growth in the United Kingdom and the Ireland over the Christmas (Kölking, 2014). Primark’s Management and Business Structure As the famous clothing retail store, Primark recently embarks in different retail products that are not only restricted to the manufacturing of the clothes but also the related products such as accessories and apparels that are available to all human sizes. The company employs a simple managerial operation in its stores structure (Primark, 2012). Every store usually has its own manager that is responsible in the overseeing the status and the business operations. With the manager’s inherent authority, they are given the power to manage the store within her/his point of responsibility (Primark, 2012). Additionally, in smaller or larger branches, the duty or assistant managers are assigned the responsibility to manage/control the store. Within the store, there are various subdivided departments in which the manager is assigned like the junior department managers and senior department managers who are in charge of the individual departments. The management and the business structure of the Primark posits a simple way of the management of the human labour and force (Primark, 2012). However, as simple as this might seem, yet inevitably creates a very serious issues and problems when the proper assessment of the structure will be undervalued. 2. Industry Analysis The Primark is the retail store in the retail industry that is a member of the Ethical Trading Initiative, the collaborative forum that brings together the business to work on the labour right issues in their supply chains. Indeed, Primark has developed the ethical strategy in order to promote the labour rights issues within the company. Certain code of conduct and guidelines must be clearly defined in regard to the ethical implications of the work to the human rights. For instance, the company initiated and defined its ethical trade strategy in 2006, focusing on the assessment of the employees working conditions, the factories operations’ issues and the addressing of the necessary improvements (Oxborrow, & Brindley, 2014). The company’s annual report of the activity should be submitted to the Ethical trading Initiative Board. Using the PESTLE, SWOT, and Porter’s Five Forces, I will examine the internal environment (micro-environment) and external environment (macro-environment) of the Primark’s retail clothing industry. PESTLE Analysis Political The political analysis deals with the ability of the organisation to adapt to the different governmental directives. The political factors that influences the performance of the industry include the policy changes and the amendments, the governmental initiatives and the regulations that could force the company to re-evaluating its business strategy in that particular market. As the member of the E.U, the United Kingdom is subjected to the common policies of the trade and the legislation enforced by the European Union. For instance, in the recent years, the political environment across the E.U. has witnessed certain turmoil. Many industries were affected from the onset of the recession in the 2008. In 2009, when the recession was at its worst, Primark experienced an increase in the profits by 10% as reported by “The Guardian.” However, due to the company’s purchases of the merchandise in Dollars, Primark suffered decrease in the margins due to the weakening of the sterling against the Dollar (Teather, 2009). Primark has a huge network of approximately over 700,000 partners across the three continents. In order to guarantee total compliance with the directions of the Ethical Trading, the company has ensured continuous improvement in the working conditions of the suppliers’ employees. Primark is the member of the Ethical trading Initiative since 2006 and also joined the Better Work Partnership in 2010. Compliance with the trade regulations is the most expensive affair and such Primark has to bear the cost of the training of its suppliers on the ethical trade and the payment for the external audits (Gockeln, 2014). Additionally, in the events audits expose any issues, Primark has to bear the duty of correcting them through the support and training from its ethical trade team. Economic The economic factors refers to the impact of the different market changes that might lead to the creation of the risk in the organisation. The European Union’s economic has been complicated with the Euro zone (a minority union that was established in 1999) nearing collapsing during the period of recession. The European Union highly encourages importation, however to maintain the competitive pricing in the domestic markets is hard as the pricing of the imported goods are mostly highly dependent on the currency exchange rates. These economic elements presents a company with either the opportunity or threat in the particular market. For instance, Primark faced GPB 8.6 million in the losses between the 2001 and 2002 from its international retail arms leading to the shutting down of its Continental Europe operations (Primark, 2012). The economic conditions play crucial role in the success or the failure of the organisation as they influence the capital availability, operational and demand expenditure. These economic factors are affected by the political and governmental policies. Many companies rely on the funding for the continued sustainability and the expansion. The fluctuation in the capital markets affect the interest rates and the profitability of the companies. Similarly, the inflation in the economy due to increased price for the fuel many lead to the reduced purchasing power of the consumers and the increased cost of the goods for the companies (Gockeln, 2014). Labour is the integral part of the retail industry and its performance. The availability and the cost of the skilled labour is dependent upon the training, influence and inflation of the labour unions in the industries. Social The social analysis usually focuses on the demographic changes that influences the performance of the organisation. The social changes affects the purchasing behavior of the consumer and therefore, in this area of the analysis, for the retail industry the preference of the consumer is given the top priority. The changing consumer attitudes and the lifestyles should be recognised and well researched by the company and the correct procedures taken to ensure that the new consumer demands are usually met (Kotler, 2005). The United Kingdom population demographic is highly mixed with the people from the different cultures, races, religions and groups. Each of the populations demographic might have varied purchasing power/behavior that needs to be appropriately recognised and nurtured by Primark. In the modern age, consumers are increasingly becoming environmentally friendly and they are likely to associate themselves with the organisations that are perceived to be environmentally responsible. Primark has been under fire in the recent times for partnering with the suppliers who violate the worker’s rights. For instance, in 2006, the War of Wants reported that Primark was using the suppliers that made use of the child labour in making their garments for as little as 3 pence and hour (Martin, 2009). In 2009, Primark’s British supply chain came under scrutiny when one of its suppliers TNS Knitwear was found of employing illegal immigrants at the half the minimum wage in the manufacturing of the Primark’s clothes. These allegations affects the consumers to change their purchasing behavior unfavorably towards the retail chain (Martin, 2009). Technological Technological factors deals with the company’s ability in adopting the latest available technology and its ability to ensure successful integration into the business processes for the increased profitability and improved performance (Julia, 2005). In the retail industry, there are various technological innovations that can improve the quality of the products and services, efficiency of the customer services, cost of the transactions, security, the inventory turn around, and among many others and enhance the nature of the business. The building of the competitive advantage through the improvement of the value chain is the approach that was propagated by Michael Porter in the 1980s in the book entitled “Competitive Advantage: Creating and Sustaining Superior Performance” (Porter, 1985). Michael Porter asserts that an organisation can build the sustainable competitive advantage in its performance through focusing on the improving its value chain activities like the manufacturing, purchasing, distribution, warehousing and marketing. This is not however not an easy business approach due to the high capital investment in the technology. Fortunately for Primark, it was the early adopter of this approach. The company believes in investing in its supply chain and warehousing. Its strategy is based on the fast fashion that requires the product lines to have the quick turnaround. Primark has also provided its suppliers with the technical assistance that ranges from the complete plants to the specific machinery. For instance, after realizing substantial growth in its domestic UK market, the company is looking for the ways by which to support its 20% projected increases in volumes (Hugos & Thomas, 2006). In 2005, Primark’s national distribution center in the Magna Park was destroyed by the fire. This event led to the question on the sustainability of the company. Primark then partnered with the SDI Green Stone so as to develop the new distribution facility. This new facility was completely equipped with the latest automated material technology and the improved the company’s operational efficiency, inventory distributions, visibility and control (Hugos & Thomas, 2006). The online sales have experienced increased growth in Europe. For instance, Footfall in the retail industry has seen a dip growth in the 2011only at 1.5% of this increased growth only 0.5% was seen in the retail space while the online growth is expected to rise by approximately 10%. Conversely, Mark Zablan (The Managing Director, UK & I) states that “If retailers can harness multi-channel activity they will increase their understanding of their customers and will improve conversion rates and profitability” (Nickson et al., 2012). Primark’s website is just the basic aggregation and the information platform do not support the e-commerce. The website is an online community site that is specifically made for the Primark’s customers so as to allow them to share their perspectives on the brand. This online platform is the tool that engages with the company’s consumers and drives them towards purchasing in their retail space. Legal The legal factors refers to the efforts of the organisation in complying with the different laws on the tariffs, taxation, insurance policies, trading, salaries and wages. For instance, if the government increases the rate of the VAT or the sales tax to be paid by the retailers, then the company will have to increase the prices of its products which can lead to the fall in the sales because Primark is famous for the cheaper goods and the customers will find it hard to purchase the products at a high prices (Edger, 2012). The legal factors also play an important role in the expansion and the growth strategies of any organisation. Primark acquired the high street stores from the Littlewoods for approximately over 400 million pounds (Edger, 2012). Such types of acquisitions require the detailed legal compliance and the third party endorsements like the UBS bank that was appointed as the legal advisor on the deal. This level of the legal compliance leads to large onetime costs that can affect the company’s short-term financial performance. Porter’s Five Forces The Five Forces analysis evaluates the five factors that determine the industry competition. Threat of the New Substitutes Substitutes usually refers to the products from the other industries or from the competitors that serves the same purpose (Porter, 1985). Primark has managed in keeping the risk of the threat of the substitutes at the minimum level. This is because the company has the valuable brand. However, the variety of the substitutes such as the Top Shop, Manchester United, ASDA, and among others are also available. Additionally, Primark charges the reasonable prices when compared to its competitors while also providing discounts to their customers. This has played a great role in the reduction of the threat of the substitutes (Shawcross, 2014). Finally, the company has embraced the recent development in technology like the internet that has facilitated the online shopping. Additionally, Primark take extensive use of the credit cards that has promoted the security and privacy. All this factors makes it difficult for their products to be substituted by their competitors. Competition Intensity The retailing industry of the UK comprises of so many retailers. This means that Primark operates in a very competitive industry. Additionally, the competitors like the Next &Gap, who have fully exploited the clothing demands for the younger people presents a major threat for Primark (Haberberg and Rieple, 2001). Also the high competition is facilitated by the established retailing business in the country. In this regard Primark faces major challenges like the loss of the market share. Additionally, the company faces competition from the lower as well as the higher ends in the retailing clothing industry (Shawcross, 2014). For example, ASDA offers the brands like the Matalan and George that are not only of high quality but also lowly priced. This has snatched the traditional customers from Primark. Additionally, competitors like the Top Man, Gap, Zara, and Oasis have designed the latest clothing fashions that are attached to the younger generations. This means that the stiff competition has led to the Primark losing the significant number of the clients. Threat of New Entrants Primark has very little control over the new entrants into the market. The ease of the entry of the new entrants is facilitated by the lenient policies by the United Kingdom government that encourages new entry (Nickson et al., 2012). This has indeed been an incentive for the new firms that enter into the industry. In fact, this further explains why there are a lot of players in the UK market. Bargaining Power of Suppliers The management of the bargaining power of the suppliers is important for the success of any company (Porter, 1985). The high bargaining power of the suppliers is considered as the most detrimental factor to the success of the company (Shawcross, 2014). Low bargaining power of the suppliers on the other hand is considered to be healthy to the company. This therefore means that Primark is able to maintain raw materials at a low cost hence translating to the huge profits. The company is currently putting more pressure on the local suppliers to reduce their prices for the raw materials that remains high as compared to that of the foreign suppliers. Primark faces very low costs of switching to the new suppliers. This leads to the increased company’s purchasing power over the competitors (Shawcross, 2014). Bargaining Power of Buyers The bargaining power of the buyers in the retail industry is relatively high. Additionally, the buyers are more price sensitive and they visit shops so as to find the lowest prices before making the purchase decision (Shawcross, 2014). This is detrimental to the company since it lacks the power to review the prices upwards hence contributing to less profitability. Opportunities and Threats Opportunities: in the modern economic scenario with the shoppers gravitating towards the competitive price, Primark’s core business strategy of the cut-price clothing serves as the great opportunity to enter new markets across the world. The emerging e-commerce is also the opportunity for the Primark. For instance the European consumers spent approximately $197 billion in 2007 and the forecast surged to the $406 billion in 2011 (Fast, & Ling, 2011). Therefore online shopping is the favorable opportunity for Primark to capitalise on. Threats: the competition from the competitors such as Marks and Spenser has reduced the rates. This has threatened the market share of Primark as they lose the cost advantage. The supply chain management such as the change in policies has directly affected the production and the supply of the Primark’s supply chain management performance (Shawcross, 2014). 3. Company Analysis Primark’s core business is based on the high street retailing and the core products are the clothing for all the family women, men, and the children. With the identification of the core business and the products, the core competencies are usually applied in these areas. Primark’s competitive advantage is majorly based on the their brand name that is rooted on the high street as the lowest price, the equating of the value for the money, the suppliers’ linkage, sites and the advertisement strategy. VRIO Analysis This is the analytical technique that considers several evaluation dimensions for the organisation as well as for the competitors. It’s an acronym that stands for; value, rareness, imitability and the organisation. Value: Primark’s brand value is not only easily affordable by its customers but it’s also a unique brand that is rooted on the high street (Shawcross, 2014). Rareness: the company has an effective distribution channel with their stores strategically located as compared to its competitors. Additionally, Primark has a team of the experts that tracks the new fashion trends thereby delivering products that are not easy to be found anywhere (Shawcross, 2014). Imitability: Primark’s services and products makes it hard for the competitors to acquire the similar capabilities (Shawcross, 2014). The company has a unique culture of carrying out its businesses through the value proposition to the customers, leveraging of the costs and among others that makes it stand unique. Organisation: the company has a very strong organisation culture that links from the top management to the bottom management (Primark, 2012). For instance the company has a strong warehousing and distribution network due to its strategy to reduce the time to the market as much as possible (Shawcross, 2014). Some of the value creating strategies for the company include; strong strategy for the cost leadership, strong distribution network, establishment of the customer confidence through cheap price promises, establishment of the product leadership among others (Primark, 2012). Strengths and Weaknesses Strengths The company’s main strength lies in being the cost leadership and efficient supply chain and the logistic processes. This have played a crucial role as the major source of the competitive advantage for the company (David, 2009). Weaknesses Branding-the company’s lack of the high brand equity has negatively affected the profitability of Primark. The excessive reliance of the company on the outsourcing for the manufacturing and supply chain processes has made it more dependent on the vendors and suppliers (Shawcross, 2014). Evaluation of the future strategies for the company Primark has the internal capabilities for growth. However, the company should invest in the expansion with the central focus on the market development. Some of the key strategies that can be derived from my analysis include; Cost-leadership Strategy The cost-leadership strategy deals with the company’s ability to gain the market share through appealing price-sensitivity or cost-consciousness. This is achieved through the application of the lowest prices. The market strategy is used by Primark through the provision of the products at affordable prices and reasonable quality (Dach & Allmendinger, 2014). The company should, however, consider producing the products at very low prices compared to its competitors. Though the cost leadership is the best strategy for Primark, the critics of the strategy argue that it may have the inconvenience of reducing customer loyalty due to the fact that price-sensitive customers may run away (Dach & Allmendinger, 2014). Diversification and consolidation Ansoff stated that diversification stands apart from the other three generic strategies. In order to ensure continued growth, the company should use the diversification and consolidation strategy to ensure that its stores are providing an exciting and efficient shopping environment (Fast & Ling, 2011). Diversification can be done through entering the emerging markets, introduce section for the electronics, introduction of loyalty cards, new products lines, introduction of food Hall, among many others. Corporate social responsibility strategy The company should consider continued monitoring and the progressive improvement of the working conditions. The CSR is the source of the business opportunity and the source of competitive advantage for any company. Therefore, the integration of the CSR will allow Primark to pave way for all-round sustainability and the growth (Dach, & Allmendinger, 2014). Conversely, it is the society that provides a company with business and thus, it is imperative for the company to give back to society through CSR. Just in Time strategy (JIT) Primark being one of the largest retailers in UK, the organisation should consider JIT strategy in order to fortify the company’s competitiveness in the market place through the reduction of the wastes and improvement of the efficiency of the production and the product quality (Choi et al., 2013). This can be achieved by setting up of systems to identify problems, excellent warehouse-keeping management, and little working capital being tied up in the stock since the stock is only obtained when needed, among many others. The other strategies include; stability as the strategy, training and personal development strategy, customer orientations strategy, and the strategic supply chain management. 4. Conclusion One of the key principles of the Primark is ensuring that it provides the customers with the value for money garments and the maintenance of the ethical manufacturing standards. The sustainability is one of the key features of the company that can be attributed to the strategic marketing strategy of the company’s business practices. The implementation of the aforementioned strategies are key to the survival and continued development for the company. however, the strategies are faced by the following barriers; ingenuous systems makes it hard for the company to implement JIT strategy, implementation of the cost-leadership strategy may reduce the customer loyalty, the strategic supply chain management is faced by strict policies that may be hard for the company to implement, and among others. These makes it hard for the company to implement the strategies in a smooth manner. However, based on the analysis, Primark is still a reckoning for in the retail industry not only in UK but also the rest of the world. References Choi, T. M., Chow, P. S., Liu, S. C., & To, Y. T. (2013). A cross regional analysis on fashion quick response programs. Fast Fashion Systems: Theories and Applications, 4, 111. Dach, L., & Allmendinger, K. (2014). Sustainability in Corporate Communications and its Influence on Consumer Awareness and Perceptions: A study of H&M and Primark. Procedia-Social and Behavioral Sciences, 130, 409-418. David, T. (2009). Primark profits increase despite recession. Retrieved from http://www.guardian.co.uk/business/2009/apr/21/primark-announces-profit-rise Edger, C. (2012). Effective Multi-unit Leadership: Local Leadership in Multi-site Situations. Gower Publishing, Ltd. Fast, S., & Ling, M. (2011). A Retail Expansion in the UK: A qualitative analysis of smaller Scandinavian fashion companies' expansion options and market potentials in the UK market. 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