Pest Analysis of Primark Stores Ltd

Organisations And Environment PEST Analysis On Primark Stores Ltd Contents Introduction 1 Economic Factors 1-2 Technological Factors 2-3 Social Factors 3-4 Political Factors 4 Conclusion 5 Bibliography 5-6 Introduction This report will look at the macro environmental factors affecting Primark which operates in the high-street retail clothing sector. Primark offers chic clothing on the cheap through a number of department stores throughout the UK & Ireland, Holland and Spain. With its main target market being fashion-conscious under-35-year-olds, it is the second largest clothing retailer in the UK. The business environment is ever-changing, and it is crucial that all organisations analyse the environmental factors accurately to allow them to adapt to changes that may arise. If the environment is not analysed correctly, or if not enough attention is paid to observing environmental changes then the organisation could miss vital opportunities and fall under massive threat. This report will focus on a PEST analysis; a PEST analysis is a detailed environmental analysis that allows organisations to implement strategies that will respond to all environmental factors that they are faced with. A PEST analysis consists of four factors; Political, Economic, Social, and Technological. Primark, like all organisations will have to deal with all these environmental factors in some way. This report will now go into detail considering how each of these factors affect the high-street retail clothing sector, in particular Primark, and how they have or could respond to such issues. Economic Factors The biggest economic factor that has affected Primark in recent times, as with most businesses is the recession. This will definitely hinder Primark’s performance, as the recession means that their potential consumers will have less disposable income, and therefore will be less likely to spend vast amounts of money on clothes. However as Primark is certainly at the cheaper end of the high-street retail clothing sector it has a much more inelastic income elasticity of demand than some of its clothing competitors; meaning that it could have a huge advantage over some of its higher priced competition. This is because consumers will have less money to spend. But fashion-conscious women will still want to look good; and with Primark offering chic clothing for cheaper prices, many of these women may see Primark as an attractive option for their clothing purchases. The second economic factor to be talked about is the price of fuel. In the summer of 2008, the price of oil reached $147 a barrel (the highest it has ever been). Primark will have noticed huge increases in their transportation costs when the price of oil was this high. Primark relies very heavily on transportation as it has only two distribution centres, one being located in Leicestershire, UK and the other being located in Naas, Holland. As it distributes to all over the UK & Ireland, Holland, and Spain it will experience heavy fuel costs, and heavy shipping costs. Therefore, the high price of oil will increase costs and cut into Primark’s profit margins. Unless it decides to pass the cost onto the consumer, in which case it would experience a decrease in sales. Another important economic factor to look at is the lowering of interest rates by the Bank of England. ‘The interest rates have been cut five times since October at which point they were 5%, and now they stand at just 0. 5%. ’ (Monk, 2009) The extremely low interest rates will mean that most mortgage owners will be paying a lot less money back on their mortgage. This will result in them having a lot more disposable income, and could mean that they will have a lot more money to spend on clothes, and Primark could see sales increase. On the other hand; some of these mortgage owners may already have been Primark customers as they previously had a lower disposable income. Now they have more money to spend, they may take their custom to higher priced, higher quality clothing retailers. Technological Factors The first technological factor to be considered is the Penneys gift card. Penneys is the trading name of Primark in the Republic of Ireland. The gift card is only available in Ireland at this current time, but Primark may wish to introduce it into its Primark stores at a later date. The gift card was made available from 3rd November 2008, and gives the user the chance to put a minimum of â‚ ¬5 and a maximum of â‚ ¬200 onto the card. To add to this each card has a unique 19 digit number; with this number the gift card holder can check their current balance on the Primark website, without even needing to go to the store. With the knowledge that a gift card holder can check their balance online, one would assume that they must have an integrated computer system with these gift cards. This will give Primark the necessary information to see: which products are bought most frequently, when they are bought, a gift card holder’s average spend, amongst other things. Meaning that the gift card could be used as a useful tool for marketing purposes. This report has already mentioned the fact that Primark uses a website, which is also a technological factor. Primark’s website gives information on the company profile; including background, its ethical policy, and its upcoming stores. The fact that it shows upcoming stores could be seen as a good promotional tool. For example, currently on the website it shows that Primark plans to open a store in Bremen, Germany. This is promoting to German customers who have visited Primark stores before and have been waiting for one to open in Germany. Furthermore the website includes a store locator, giving potential customers the chance to locate the nearest store to them. This means that consumers can know the places they need to go if they want to find Primark stores. A major factor that could cause Primark to lose a lot of potential customers is the lack of online shopping available on their website. One of its biggest competitors, the Arcadia group which encompasses such stores as Topshop, Topman, Burton etc does have online shopping available on its website. In 2006 it was suspected that UK online shoppers were expected to reach 24. 9m in 2010. This is a huge amount of potential customers that Primark could be missing out on. Primark’s target market is under-35-year-olds; these are the people who use the internet most regularly. This could lead to Primark losing market share to the Arcadia group, and Tesco who also provide cheap clothing online. Social Factors The biggest social factor that affects Primark is the current fashion trends that potential customers are looking for. ‘Value clothing is now at the heart of British shopping. Two in five adults are now admitting that they buy their basics at â€Å"value† shops. (Smithers, 2008). This is saying that clothing consumers are now looking to buy cheaper alternative outfits. With this now being the social fashion trend of the UK market, Primark has a big advantage over other high-street clothing retailers. ‘In 2007 Primark was nicknamed Pri-Marni in the style pr ess for emulating fashion spin-offs, and overtook Asda as the UK’s most popular value clothing retailer. ’ (Smithers, 2008). Primark has responded to young women wanting highly fashionable clothing for cheaper prices by producing designer copies made with cheaper fabric. This is has led to massive sales, and shows an intelligent response to this social factor. Primark has recognised that to be viewed highly in society in modern times, means that the organisation must act ethically. This is shown by their ethical strategy on their website. ‘The challenges in the global garments supply chain require the collaboration of many different types of organisations to ensure that the gains from trade are spread. ’ (Primark, 2008). This quote taken directly from their ethical strategy tries to show that they are looking for all the workers that produce their products to be paid and treated properly. However, in January 2009 the BBC found that some of Primark’s manufacturers were acting in an extremely unethical manner. ‘TNS Knitwear Ltd is one of Primark’s biggest UK suppliers of knitwear. The minimum-wage is ? 5. 3 an hour, however an undercover BBC reporter applying for a job at TNS Knitwear was told she would be working for 12 hours a day, 7 days a week for ? 3. 50 an hour. What is more, there was no heating and a broken toilet meant that both sexes had to use the same bathroom. ’ (Dhariwal, 2009). Stories such as these showing Primark’s manufacturers acting in hugely unethical ways could dramatically lower society’s opinion of Primark; leading to a large cut in Primark sales. Another social factor that Primark looks to implement on is the growing trend of organisations needing to be more environmentally friendly in order to succeed in current business climates. For the majority of purchases at Primark, the customer is given a brown paper bag instead of a plastic bag. Primark plastic bags are used only for heavy items with which the paper bag handles would rip. As paper bags are more bio-degradable, they are much more environmentally friendly. This gives Primark an image that shows they care about the environment, and improves their overall image socially. Political Factors This report has already covered the fact that TNS Knitwear Ltd (one of Primark’s suppliers) did not pay the minimum wage of ? 5. 73 per hour. Due to the minimum wage act, this is breaking the law. Failure to abide by the law could result in a ? 5,000 fine. Furthermore it was found that TNS Knitwear Ltd was also employing asylum seekers who were working illegally in the country. ‘Employers who take on illegal workers can face fines up to ? 10,000 per person under the Immigration, Asylum and Nationality Act. ’ (Dhariwal, 2009). Even if it is not Primark itself that is committing such acts, it should always research its potential suppliers’ records to ensure that they are not involved in criminal activities either. This is not just unlawful, meaning it is a political factor, but is also unethical and so a social factor. In December 2008, the Government reduced the Value added tax on products from 17. 5% to 15%. This meant that Primark’s products looked 2. 5% cheaper, and could easily have led to higher sales as a result. To add to this, if it had made it known to customers that it was passing the V. A. T. reductions onto the consumer, it could be seen as a clever promotion tool, to encourage more potential customers to purchase its products. Conclusion The fact that Primark has become the UK’s most popular value clothing retailer would indicate that Primark is very aware of its trading environment. A sound knowledge of its trading environment can lead to such success. However there are a few factors which this report uncovers, in which Primark is perhaps failing to respond to correctly. To summarise the environmental analysis, this conclusion will discuss the factors which Primark responds well to and the factors it responds to less well. Primark’s most probable biggest concern will be the social factors affecting it. This is down to the fact that fashion relies almost entirely on social opinion. If customers do not like the products Primark offers, they will not buy them, and Primark will fail as a business. Primark’s sales in 2008 prove them to be the UK’s most popular value clothing retailer. In today’s society women want designer-like clothing for next-to-nothing prices. Primark has responded to this, and delivered with great success. On the other hand Primark has failed to respond to its suppliers’ criminal activities; giving the company an unethical view in society. If Primark can act quickly and find suppliers who act ethically, then it may not experience a big decrease in social opinion and continue with high sales. Unfortunately for Primark, ethical suppliers may not be able to produce the clothing for such low cost; and this could cut into Primark’s profits. Today’s current economic climate is not ideal for any organisation; recession meaning that consumers have far less disposable income. However, clothing is a necessity and Primark offers the cheaper end of high-street clothing. This might mean that Primark will not suffer a great deal compared to competing high-street clothing retailers. Furthermore if it can keep providing demand to its suppliers then they should survive the recession too. The company’s website is a great information tool; giving customers insight about the organisation, and giving them the chance to locate current and future stores. This can be seen as a good response to technological factors. However, with the growing trend in online shopping, and the company’s current choice not to sell its products online, could mean it loses large amounts of market share to competitors who currently provide such services. The poorest response to an environmental factor is Primark’s response to political factors. Its failure to discover that its suppliers were involved in criminal activities is very poor indeed. This is something the company will need to take into greater consideration in the future. Bibliography Dhariwal, N. 2009) Primark Linked to UK Sweatshops [Internet], BBC News. Available from: [Accessed 7 April 2009] M2 Presswire. (2006) TelecityRedbus: Online retailing is only half the story when it comes to UK internet activity; 35% i ncrease in UK internet shopping sales since July 2005; Online shoppers are expected to reach 24. 9m in 2010[1]; Figures from TelecityRedbus demonstrate the UK's growing dependence on a wide variety of online services, including government services, banking, travel and bill paying as well as a range of entertainment services [Internet], M2 Presswire. Available from ;www. lexisnexis. om; [Accessed on 7 April 2009] Monk, D. (2009) Low interest rates cost Notts councils ? 7. 6m; While mortgage payers are celebrating the lowest interest rates in the history of the Bank of England, Notts councils will lose ? 7. 6m on their savings next year. Nottingham Evening Post, 17 February, p. 10. Primark Stores Ltd. (2009) Primark [Internet]. Available from: ;http://www. primark. co. uk; [Accessed 7 April 2009]. Smithers, R. (2008) National: Fashion: Ethical concerns left at home as demand for cheap clothes surges: Primark and Asda lead way in reaching out to masses keen to wear latest designs. The Guardian (London), 30 January, p. 9.