Confident Primark bucks downturn with eye-catching expansion in Spain

WHEN CLOTHING retailer Primark first expanded into continental Europe, opening up two stores in Spain in 2006, it looked like a logical move. The country was riding the crest of an economic wave that had made it one of Europe’s most attractive markets.

But when the company opened two more stores in the country this month – in Pamplona and Badajoz – Spain was showing few signs of emerging from its worst slump in living memory.

The retailer will open another six Spanish stores by the end of November, an expansion that will give it a presence in the country of 35 shops, employing 5,500 people. It will have 250 stores across Europe.

It is a mark of Primark’s confidence that it feels it can become a major presence in Spain despite the state of the economy.

“Sales remain buoyant,” Primark said. “Our expansion in Spain, despite the challenging economic climate, is testament to our fashion forward designs and our competitive prices.”

Maureen Hinton, a retail analyst at Verdict Research, says the appeal of Primark – often jokingly nicknamed “Primarni” – is based on “low-price good products in a great store environment”. The pricing factor, she says, should help it draw customers in a country that has 25 per cent unemployment, a banking crisis and which faces the possibility of a sovereign EU bailout in the coming weeks.

Verdict Research expects spending on clothes in Spain to drop by 1.5 per cent between now and 2016, its bleakest forecast for any European country except Greece. (Poland tops the company’s outlook, with Irish spending expected to remain flat during that period).

Soledad Andrade, a 27-year-old sales manager, is the kind of young, low-income customer Primark is targeting. She says she has shopped at the company’s stores in Madrid “because of their prices. They’ve got fashionable clothes, stuff you need just for the next few months, so it doesn’t matter if it’s not top-of-the-range quality,” she said.

Primark is owned by Associated British Foods.

It was set up by Dubliner Arthur Ryan, who opened the first store, under the Penneys brand, in Dublin’s Mary Street in 1969.

Under the Primark name, to avoid any legal confusion with US retailer JC Penney, the company enjoyed a steady expansion across the UK over the following 30 years, with the intensely private Mr Ryan ensuring it maintained an old-fashioned feel until he stepped down as chief executive in 2009.

Over the last decade the retailer has altered its approach, moving shops from secondary high streets to prime locations.

The strategy has paid off, driving a success that has seen Primark move steadily across Europe into Germany, Belgium, the Netherlands and Portugal, although Spain remains by far its biggest continental interest.

“In terms of actual presence around Europe, it’s still a relatively modest player – although it is more of a leading player in the UK and Ireland,” said Darren Shirley, a consumer analyst at Shore Capital. “But therein lies the opportunity to grow.”

Primark is careful in choosing the locations of its stores. It wants to attract young shoppers in prime locations, and many of its sites are in upmarket shopping centres with a high footfall.

In Spain, like many European countries at the moment, such sites are relatively easy to find lately with so many high-street businesses closing down.

With Primark reporting this week that sales are expected to be up 17 per cent for the year to September 15th, the European economic climate seems to be doing little to dent the companys ambitions. “Trading has ticked up and there is no doubt Primark is thriving and gaining market share,” said John Bason, Associated British Food’s finance director. Primark has not shied away from the challenge inherent in seeking to expand on the home turf of fellow budget retailer Inditex, owner of hugely successful brands such as Zara, Massimo Dutti and Pull Bear.

La Coruña-based Inditex posted net profit of €432 million in the first quarter of the year, an increase of 30 per cent and better than analysts had expected.

Officially the world’s biggest fashion retailer by sales, Inditex would appear to be a daunting rival for Primark.Not necessarily, says Ms Hinton.

“Primark appeals to a very young shopper and is right at the lowest end of the price range, whereas Zara appeals to a slightly older shopper, it’s got more fashion credentials and is more premium,” she said. However, she does think some of Inditexs younger labels, such as Bershka and Pull Bear, could find themselves going head-to-head with Primark.

Mr Shirley expects to see Primark register double-digit sales growth annually in the next few years, with Spanish expansion driving much of that success.