An Investigation About The Primark David Cameron

Primark Investigation
Student’s Name
Institutional Affiliation
Primark Investigation
Primark was established in 1969 in Dublin, Ireland by Arthur Ryan under the name Penneys. It success in the Irish market led to its expansion into the UK market. Since the company was registered as Penneys in its home country, it reinvented its name to “Primark” considering that there was a company that was already registered and operating in that name “J. C. Penney”. Therefore, “Primark was invented for use outside Ireland. It is a clothing retailer with operations in more than five countries. In 2005, it became a subsidiary of Associated British Foods (ABFs) (Primark.com). At the end of 2015, its global turnover amounted to £5.4 billion, this indicates that the company is experiencing a tremendous success. Primark’s low price value has made it to be the low cost leader in low priced fashion. Low priced products by the company has attracted more customers especially after the 2008 financial crisis where customers who felt the impact flocked the outlets because of its low prices. This has contributed to Primark’s revenue growth and profitability (see the figure below).
Source: Statista.com
Macro Environment
Political Factors
It was predicted that Brexit was to cause both political and economic turmoil as well as uncertainty in Europe. Unsurprisingly, after Britain voted to leave EU in June 2016, it sparked political upheavals in UK resulting the in the resignation of Britain’s Prime Minister David Cameron. Brexit also led to the Scottish Prime Minister Nicola Sturgeon call Scotland’s second independence referendum with opinions aimed at protecting the interests of their country in EU since they voted to remain (Douglas & Gross, 2016).
Brexit has also created a lot of uncertainty for almost all businesses with operations in Europe. Although some organizations such as Primark benefited from the pound’s depreciation against other currencies like the dollar and Euro, ABF, Primark’s parent company have indicated that the move have created uncertainty in UK’s business environment. It also stated that the company will experience adverse transactional effects that will affect its profit margin if Britain leaves the European Union (McGregor, 2016).
Economic Factors
Brexit led to the sterling pound’s depreciation against the dollar which intensified financial turmoil across the region (Toplensky et al., 2016). At the wake of Brexit, London found itself under pressure as the Europe’s financial hub with majority of investors threatening to pull out their investments.
Although, Primark’s parent company stated that Brexit have created a lot of uncertainty in both business and financial markets across the region, it also brought few benefits such as translation benefits for Primark if the exchange rates remained constant during the trading period (McGregor, 2016).
Social Factors
The biggest social trends affecting the clothing line in UK are the increasing rate of obesity and ageing population. NHS (2015), notes that the UK is being referred as “fat man of Europe” since about averagely 5 out of 10 British people are classed as overweight. Most of the obese people avoid certain retailers due to lack of oversize clothes. This has been evidenced by some of the retailers such as Topshop who do not stock oversize ranges. However, the rising rate of obesity in the UK may present a potential market opportunity for those companies that can stock plus-size ranges (Mintel, 2015). NHS (2015) notes that it has been predicted that by 2050 half of UK’s population will be obese, therefore, clothing retailers should start stocking oversize ranges.
The Office for National Statistics indicates the UK’s labour dynamics are affected by the ageing population. ONS has also indicated that between 1974 and 2014, UK’s median age has increased from 34 years in 1974 to 40 years in 2014 (ONS, 2015). However, despite this being a major challenge to clothing lines in the UK, it has its own benefits as most of the ageing population have more income than the young population since they stay at full-time employment for long. Statistics have also indicated that 60% of the ageing population shop online making online shopping a growth opportunity for Primark.
Technological Factors
The advancements that are being witnessed in the technological sector have brought about several benefits to all sectors of the economy. E-commerce is such an advancement that is being accelerated by technology and is opening up more competition to traditional distribution channels. Online stores such as Amazon, eBay, Boohoo and others have created a competitive space for retailers due to its relatively low operational costs. Primark does not operate an online store making it vulnerable to losses since most customers are opting for online shopping and such technological advancements shape the retail business (Mintel, 2015).
Porter’s Five Forces Analysis
Threat of New Substitutes (Moderate)
The risk of new substitutes to Primark’s product have been kept to the minimum level due to its strong brand. However, there is the availability of a variety of substitutes such as Zara, TopShop, ASDA and many others, but they have been kept at par due to Primark’s low price strategy. Primark also offers discounts to its customers which has further reduced the threat of substitutes. Primark’s competitors switch their prices affecting their customers, therefore, Primark’s decision to keep its prices constant has enabled it to minimize the threat of substitutes.
Threat of New Entrants (High)
Primark does not control the entry of new firms into the market. This is controlled by policies implemented by the UK government that has encouraged free entry and exit into the market. This explains why the market has got several players.
Bargaining Power of Suppliers (Low)
Primark has a wide base of both domestic and foreign suppliers and does not demand more from any single supplier. This indicates that Primark’s suppliers do not have sufficient power to influence material prices.
Bargaining Power of Buyers (High)
Primark is considered as the largest clothing retailer in UK thus it has a large customer base. However, with many players in the market, its customers possess sufficient power to influence the prices of the clothes. Customers are price sensitive and most of them visit almost all shops to check for the lowest price before the make a decision to buy.
Market Rivalry (High)
UK’s retailing industry is very competitive having many key players. This has been contributed to no barriers to entry and exit from the government.
SWOT Analysis
Strengths
* Large customer base.
* Low prices as compared to its ...