OPERATED BY PRIMARK®
Primark, trading as Penneys in Ireland,
is a fixture of the Irish retail market. In
1970 Penneys operated three stores.
To d a y, t h e r e a r e m o r e t h a n 8 0
throughout the Republic of Ireland,
Great Britain and Northern Ireland,
employing in excess of 5,000 people.
In 1995, in one single business
transaction, Primark increased its
market share in the UK by 40%. The
successful acquisition of sixteen stores
at a cost of £20 million allowed Primark
to expand its operation in the UK at
unprecedented speed. This study
examines how this retailing coup was
achieved.
The Case for Expansion
Expansion
through
Acquisition
At some point in the life of a business, the
question of whether to expand and how to
expand will arise. As Ireland has a total
m ark et of less t h an f ou r million
customers, domestic expansion is limited
because of the small size of the population.
The UK Retail
Marketplace
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The UK retail market is highly competitive
and players have to compete aggressively
for suitable high street locations. Primark’s
expansion record in the UK had been
characterised by selective targeting of
appropriate store locations, resulting in the
opening of an average of two new stores per
year. In the space of four months, Primark,
through the acquisition of the One Up
stores, took over a chain of sixteen stores,
representing the equivalent of ten years’
expansion over their previous rate.
In Ireland, all companies operating in the
retail sector must appeal to a broad
category of customers. In the UK, due to
the size of the market, businesses can
target individual sectors more specifically.
The larger population base means that the
retail trade is more segmented.
■
Increased market share - Primark has
become a more dominant player in the
UK retail market and is in a position to
counter competitive activity more
effectively because of its larger size.
■
Economies of scale & increased
purchasing power - With the substantial
growth in business as a result of the
acquisition (an increase in turnover of
40% in the UK), Primark was able to
negotiate with suppliers and purchase
larger volumes of merchandise at better
rates, resulting in lower unit costs for its
product.
■
Opportunities in the marketplace The potential for retail expansion in the
UK is enormous as there are approximately
120 cities, boroughs and towns in the UK,
each with a population in excess of
100,000.
The Acquisition of the
One Up chain
The ability to identify a sound commercial
opportunity when it presents itself, from
whatever quarter it may come, has made or
broken many businesses. During February
1995, Primark management was approached
by a retail entrepreneur who had recently
acquired a number of department stores. The
entrepreneur provided Primark with the
option of acquiring these stores. Primark
management recognised the potential of
these stores.
Penneys, one of the country’s leading
retailers, have stores located in virtually
every city and town in Ireland. There is
little need for further growth apart from
perhaps another half a dozen stores.
Penneys’ growth in Ireland has been
organic as it represents a natural expansion
of premises, products and stores from
within.
Penneys trade as Primark in the UK and
until recently operated thirty stores there.
However, the UK market is very different
to the Irish one and so Primark identified
a need for expansion. The availability of
the One Up chain presented Primark with
its best opportunity for growth as the
geographical location of the stores and its
customer profile fitted in with Primark’s
plans.
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Primark falls into the discount clothing
market sector in the UK and the One Up
chain operated in the same marketing
sector. The location of the One Up stores
and the customers they attracted presented
Primark with an ideal opportunity to
secure horizontal growth. Horizontal
growth was achieved by acquiring a range
of stores that operated in the same line of
business as their own.
Young customers in Hartlepool Store.
The Benefits of Acquisition
One of the keys to survival for any
business depends on the application of
sound management to exploit opportunities
for growth and development. Primark’s
acquisition deal allowed it to continue to
serve the interests of its customers while
increasing profitability and market share,
achieving greater economies of scale and
extending its trading power in the marketplace.
■
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Increased profitability - central
operating and management costs have
remained constant but Primark’s sales
base has grown so profit levels have
increased.
Primark and the retail entrepreneur formed
a joint venture company to acquire the One
Up chain. An agreement was signed on 18
May and Primark took possession of the
stores on 19 June 1995. Overnight, Primark
became the owner of an additional 200,000
square feet of retail space and inherited a staff
of 600. They paid £20 million for properties,
assets and stock.
This transaction gave Primark the
opportunity to increase its turnover in the
UK by a staggering 40% in what was the
biggest acquisition for the company since
its establishment in 1969.
The One Up stores were taken over in June
1995. The total gross turnover for all UK
stores, excluding One Up, for the year ended
mid September 1995 was £110 million
sterling. The total gross turnover including
One Up for the year ended 13 September
1997 was £181 million sterling.
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Middlesborough Store.
From One Up to Primark
Purchasing another business is one of the
quickest ways of achieving business growth.
Primark bought a chain of stores that:
■
was well-established
■
was in good locations, and
■
had a recognised track record in the
retail trade.
After acquisition, Primark had to change
the image and format of the sixteen stores
so that they became an integral part of the
Primark group.
Cultural and management issues arise as a
result of two companies coming together and
operating as one. The acquiring company has
to incorporate its new purchase in a way that
involves the least risk to its existing business
and staff. At the same time it must build on
the new opportunities to increase its
competitive strength.
(I) Store and staffing
considerations
As part of the acquisition deal, Primark
honoured One Up’s commitments for:
1. forward orders on merchandise (forward
orders would be the merchandise already
ordered before the takeover took place)
O n a n o p e ra tio n a l le v e l, Prima rk
management immediately turned its
attention to the conversion of the sixteen
stores to the Primark image and format. Six
stores were originally targeted in stage one
of the conversion. These premises were
selected because they were identified as the
stores that would be most likely to guarantee
the speediest return on Primark’s investment.
The conversion of each One Up store took
an average of twelve weeks to complete and
was rolled out on a store by store basis. The
programme of conversion is currently being
completed and has represented a four-year
investment programme for the company.
Penneys flagship store on O’Connell
Street in Dublin has been the model for all
store conversions and new store openings.
Over time, the O’Connell Street master
design has been modified to reflect
changing retailing and consumer trends
but the basic design has remained largely
unchanged.
Primark inherited One Up staff and their
conditions of work but a substantial
investment in staff training was necessary.
As well as localised training in each store,
Primark delivered a series of seminars
which outlined the nature of Primark’s
management culture, laying emphasis on
practical differences in store management,
cash and stock control, general administration
and technology change.
2. the conditions of employment of the staff.
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(II) Merchandise
Primark operates a centralised merchandise
and buying system which enables swift and
precise sales and volume forecasts to be
accurately predicted.
Penneys buyers travel the world to source
h i g h q u a li t y m e r c h a n d i s e f or their
customers. However, as is the case with any
retailer, sales variations occur from store to
store. What sells well in one outlet may not
be as popular in another. This is caused by
traditional marketing classifications such as:
■
■
■
■
geographical location
age profile
gender
socio/economic grouping.
in fact, completed for the sixteen stores in
about four months. To complicate the
process, all stores had to have the new
systems introduced during non-peak trading
periods because of the lead-time needed to
train staff and stabilise the new systems.
Glossary of Key Terms
acquisition - an acquisition takes place
when one enterprise purchases another,
usually by acquiring a majority (at least
51%) of the equity (voting) capital.
(IV) Communicating with a
new target audience
organic growth - the natural expansion of
a business from within the business and
without the involvement of outside firms.
The overall expansion of Penneys-Primark
illustrates this pattern of growth.
There were a number of challenges that
needed to be addressed in Primark’s
communication strategy for the One Up
chain. These challenges involved:
■
Established
responding to the needs of their value
conscious customers
1969
1970
1980
1998
1 store
3 stores
33 stores
86 stores
marketing niche/sector - businesses
target and sell to existing and potential
buyers in a particular segment of a market,
which is usually broken down by age,
gender, location or socio-economic group.
horizontal growth - expanding sideways
by buying into a business with a similar
product, market and strategy to your own.
Primark’s acquisition of the One Up chain is
a perfect example of this strategy for growth.
PRIMARK
The objectives behind Primark’s
communication strategy were to:
(III) Technology
■
When Primark acquired the One Up chain,
there were a number of technological
barriers to be overcome.
■
The technology operating across both
companies was incompatible. As an
immediate step, this meant that Primark
had to devise a method of translating stock
and sales information from the One Up
stores into something that would be
meaningful to them.
Primark decided to withdraw One Up’s
technology and replace it with Primark’s
front and back end packages and install
new software and hardware.
This technology changeover had to be
masterminded at some speed and was,
■
1.
target as many potential customers
as possible
delivering a message to a diverse target
audience
2.
support existing Primark stores where
appropriate and,
rolling out the creative and media plan
on a phased basis to coincide with the
conversion programme
3.
■
reaching the highest number of potential
customers at the lowest cost
supporting existing Primark stores
wherever possible.
Creatively, Primark opted for a strong
message that focused on the type of person
the stores catered for, namely young
people and family groups. All print
communication featured a highly visible
Primark logo to guarantee good visual
recognition on the high street.
There are two accepted methods of
business expansion or growth.
Define each one and outline their strengths
and weaknesses.
1
Advertisements.
Family Shopping.
TASKS AND ACTIVITIES
execute its campaign in the most costeffective way.
The launch of the One Up stores under
Primark’s banner and the subsequent
conversion programme was supported by
local press and radio, railway and outdoor
advertising and mail-shot activity.
Local Press
Local press could reach the catchment area
for each store with little or no wastage.
Local newspapers that had distinct and
separate readership were identified. Full
page advertisements in the initial phase
during 1995 and 1996 were followed by
support advertisements during the rest of
the conversion period.
Local Radio
Because of the high concentration of stores
in the London area, radio was selected to
provide additional local coverage with
minimal wastage.
Railway & Outdoor
The London Underground and British Rail
stations provided an ideal medium for
additional impact. It was used as a costeffective way of catching the attention of
the city commuter audience.
Mail Shot
Mailing is an efficient, low cost way of
building up the interest and loyalty of a
local audience. Post Office lists were used
to target residents in the catchment areas
for each store. Mail was sent both prior to
and immediately after store openings.
The early results of
acquisition
The acquisition of the One Up chain
represents the single largest expansion
in the history of Primark.
In order to enhance results, research must be
undertaken on a company’s performance
over a number of years, both before and after
acquisition. In some industries, the long-term
effects of expansion may only be illustrated
after many years of data have been studied.
Ongoing market research is a process
undertaken by Primark to assist a speedier
evaluation of the Company’s performance.
Primark’s acquisition allowed it entry into
a London-based market where it had been
under-represented. It allowed the
Company to remove an element of
competition by acquiring a firm that
operated in the same market niche.
Primark correctly identified that the value
created by this strategy exceeded the direct
costs associated with the purchase and
conversion of the One Up chain. Above
all, Primark was able to absorb another
retail business at speed and dramatically
reduce the time it would normally have
taken to extend its market share in the UK.
Id e n tify th e re a s o n s w h y a n
acquisition might be a preferred
option for a consumer-oriented company.
2
O u tlin e s o me o f th e p ra c tic a l
considerations that need to be
addressed after a large-scale acquisition in
the retail industry.
3
Describe the benefits of the
acquisition of the One Up chain to
Primark.
4
5
Illustrate Primark’s methods of
communication with its target audience.
While every effort has been made to ensure the accuracy of
information contained in this case study, no liability shall attach
to either The Irish Times Ltd or Woodgrange Consultants Ltd for
any errors or omissions in this case study.
Business 2000
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