Primark is one of the most fêted retailers of the recession. It has built an empire on fast and affordable fashion that spans 220 stores totalling 7.1m sq ft in seven countries, against a broad backdrop of tightening disposable income.
Now, Associated British Foods, Primark’s parent company, sees scope to more than double the chain’s store numbers as it considers the next phase of overseas expansion. It has outlined the potential for 150 stores across Germany, with at least that number across Spain, Portugal, the Netherlands and Belgium.
Primark has already ramped up interest in continental Europe. Its portfolio in the UK increased by 11%, from 4.4m sq ft to 4.9m sq ft between half-year 2010 and 2011, and by just 3% through store extensions rather than new store openings in the Republic of Ireland over the same period.
In contrast, the chain’s selling space soared 40% from 250,000 sq ft to 350,000 sq ft in Germany, the Netherlands, Belgium and Portugal from half-year 2010 to the same period in 2011 and 39% from 410,000 sq ft to 570,000 sq ft in Spain.
ABF said in its 2010 annual results: “Trading in our stores in continental Europe stood out this year, with sales densities already ahead of the Primark average and delivering a strong profit margin. Primark has now demonstrated the strength of its consumer appeal in a number of countries, which provides every encouragement for its continued expansion.”
Opportunity for faster growth
Research group Mintel believes that while the UK offers further growth opportunities, continental Europe is potentially a source of much faster growth. Investment in a distribution facility in Spain to support growing numbers of stores in Iberia is a necessary cost, but it is also indicative that it sees potential to be represented in major city centres throughout the region.
Primark’s store sizes are no less ambitious on the continent – the retailer has taken a 77,500 sq ft shop in Frankfurt to spearhead its entry into Germany.
Victoria Gould, director at Jones Lang LaSalle, says: “I don’t think Primark has reached saturation point in the UK, but it has a clear acquisition strategy and there are many towns that do not currently meet their criteria.
“It is not necessarily about a lack of opportunities in the UK, but that there are probably more immediate markets across Europe in which they are keen to gain representation.”
Andrew Bradley, partner at Hartnell Taylor Cook, explains: “Primark flourishes in big, metropolitan centres and it has bagged the majority in the UK. Logic suggests that new growth is more easily secured by entering the top 50 towns and cities in Germany/France and other European cities.
“With aspirations to be European-wide, why not take stores in France or Germany, because there are better returns on capital than in, say, Enfield or Colchester?”
Primark offers the continental European consumer markets a fresh concept which, judging by the sales figures, is in demand.
Jonathan De Mello, head of retail consultancy at CB Richard Ellis, explains: “Shopping centres in Spain are dominated – almost 50% – by fashion groups Inditex and Cortefield, so Primark has provided a completely new and viable alternative to the dominance that these other groups have had.
“I think that Primark has massive scope to expand across European markets, but I don’t think they will do that while ignoring the UK market.”
New European markets
CB Richard Ellis’s Jonathan De Mello highlights further opportunities for Primark in Eastern European markets, such as the Czech Republic and Poland.
Eri Mitsostergiou, director in Savills’ European research team, also believes that countries in Eastern and Central Europe offer further growth opportunities for the ambitious retailer.
She says: “Primark could expand into countries such as Austria, Slovakia and Slovenia. I think it is an easy next step because they are countries that Primark could serve easily with its existing supply network.
“Then you have the growing markets with a young population, such as Poland and Turkey, where you can see the benefits of capturing this market share. Greece is a good market to go into because of the awareness of the consumers. Of course, these markets require more expansion of their supply and distribution chain.”
There is also unconfirmed speculation that Primark is mulling opportunities to expand west to the US. However, there is plenty of evidence of British high street favourites that have struggled to break the American market.
Sir Philip Green built up a portfolio of Topshop stores in countries across Europe, Asia, Latin America and the Middle East before the opening of a much-hyped store in New York in 2009.
Bradley warns: “The US is very fickle, as some European retailers have discovered in the past, as exemplified by Marks & Spencer with its purchase of Brooks Bros. Topshop and H&M have secured a foothold in the US and are looking to expand further. I’m sure Primark will go to the US one day, but I suspect it aspires to a larger European base first prior to targeting the States.”
Being opportunistic
Primark, which declined to give a comment to the Estates Gazette Retail supplement, has not gone completely cold on the UK. It continues to explore opportunities to open stores where it is not represented and where the demographics and store size fit.
It is thought to be in discussions to buy a second tranche of Bhs stores from Sir Philip Green’s Arcadia. The chain bought 10 Bhs store leases from Green in an off-market transaction in January 2010.
Primark has also made tentative moves to explore the out-of-town retail market. It is to occupy a 70,000 sq ft anchor store at Land Securities’ Westwood Cross shopping and leisure centre in Thanet, Kent. It is also in discussions to open its first retail park store at football club chairman Pete Winkelman and Aviva Investors’ retail park development around Milton Keynes’ football stadium.
However, Primark is widely expected to open in selective out-of-town locations rather than embrace a significant move into the sector. Andrew Bradley, whose firm, Hartnell Taylor Cook, advised Primark on its Thanet store, says: “Out-of-town/edge-of-town locations are potential Primark sites if there is no other option in the medium term.”
The thawing of the shopping centre development pipeline could release further opportunities for Primark to open in well-configured shopping centres, particularly as landlords reconsider their lettings strategies.
CBRE’s Jonathan De Mello says: “Landlords are trying to create MSU (major space user) clusters and Primark is definitely one of those [tenants]. You can easily get the same amount of footfall from a Primark and a couple of other MSUs as a more traditional anchor store. Primark pays more rent than a traditional anchor store would, so it seems that schemes are more viable and landlords are more willing to build them now that Primark is there to provide additional anchoring.”
