Recalling the wonder of my first trip to the Primark store along Oxford Street in London was rather amusing. More than 10 years ago, as I stepped into the store and looked at the price signages, I was so incredibly surprised by the low prices. Being from Singapore, with little natural resources and gone past the stage of textile manufacturing industrialisation – clothes, especially the type you can wear out of your bedroom are not cheap.
But at Primark then, I could get a hoodie for £5, a tee-shirt for somewhere between £3 and £7; shoes for just £10 or £12. Today, the prices have probably gone up by 20-40% but that’s probably just inflation. These clothes were manufactured in Asia, mostly in Bangladesh and Vietnam, but even regular clothes sold in these countries may come at a higher price. I distinctly remember that the Cedarwood (a Primark brand) and TM Lewin shirts sitting in a store in Bangladesh (said to be selling factory rejects), selling at about $25 (around £22).
That reflects the sheer cost savings that comes from economies of scale, being able to manage huge coordinated logistics, of procurement, shipping, fulfillment, and distribution in-store. By selling a these prices, Primark pretty much guarantee volume sale, thus enabling the huge economies of scale. They try to optimise further by reducing packaging to the minimum, doing away almost completely with anything beyond the label and tags on their products.
And just like that, by pricing things low, Primark essentially create a strong flow of anchor business for the textile plant that needs business in emerging Asia. They are willing and able to keep running for Primark because in times when they don’t have so much orders, Primark is there; and when they have too much orders, Primark can step back a little. This flexibility is valuable to the plants who are looking to cover overheads and staff costs, maintain the skilled labour they had hired and trained. And so the value they create gets passed on to customers, and perpetuate the cycle that keeps them in business.