Paul Lister says Primarks business model allows it to keep prices low and source ethically

Paul Lister says Primark's business model allows it to keep prices low and source ethically

With a business model focused on offering the lowest prices on the high street, value fashion chain Primark is constantly questioned over its commitment to a range of ethical and environmental retail issues. Paul Lister, responsible for Primark's ethical trading team, tells just-style "the strength of a brand's ethics is not about a price point" – and that close engagement with the supply chain is key.

Owned by Associated British Foods (ABF), Primark is one of the UK's major retail success stories of the last decade. With a 14.3% share of the UK clothing market it is the third-largest clothing retailer by value, and in 2015 recorded sales growth of 13% and an increase in retail selling space of 9%.

But despite this success the value fashion retailer faces a constant barrage of questions over how its low price points consistently undercut those of its rivals, even though it still sources from the same suppliers and factories and strives for the same ethical and environmental standards.

According to Lister, the answer is really not that complicated. And it starts with choosing not to replicate the margins of its competitors, which can be up to 20% compared to that of Primark's at 10-13%. This, he says, gives the retailer "less room to manoeuvre". 

"We don't advertise, so we can save GBP150m purely on not advertising to the scale that some of our rivals do, and that goes straight into price," he explains. "We also buy in bulk and we can buy better [than rivals]. 

"We are buying relatively simple clothing; we don't change orders, we don't cancel orders, and sometimes we buy out of season. A white T-shirt can be bought at any time of the year…and we will buy pullovers out of season because we know what we're buying, and we can get a better price."

Lister says Primark's relationship with its suppliers also has a crucial role to play, and that it works hard to engage its supply chain and ensure they are paid earlier than rivals.

"If items don't sell in store we do immediate markdowns, we're not waiting for the sale season, and the order won't get cancelled. Once a supplier has the Primark order, it will then start to mix and match between everyone else's, which are perhaps higher margin for the supplier, more fashionable, and more likely to change. I use the analogy of strawberries and cream: we're the strawberries and everybody else is the cream. 

"If you look at our overheads, these are extremely low. We don't have agents, we source in the main from factories, so all of it is designed to keep the price as low as we possibly can. We unashamedly want to be the best price on the high street."

Primark also doesn't do e-commerce, because "it doesn't work for us", Lister says. "We don't want to lose money. If we lose money online, we're going to have to pay for it in the store, and we found that things like returns take your margin away, and we don't have a lot of margin to play with."

Of course, the perception that Primark can sell a GBP2 T-shirt and still call itself an ethical company is one that is often questioned, and is a subject on which Lister is fiercely defensive.

"I don't criticise people for indulgence and I don't have a problem with it. But I do have a problem when people say it's cheap so it has to be bad. You have some ill-informed voices from afar that will criticise price points, and they do that through lack of information and, frankly, because it's easy to.

"I'm not kept awake at night by the idea that we sell a GBP2 T-shirt. That doesn't matter to me at all. We're all sourcing from the same places; we share 98% of our suppliers with other retailers. The strength of a brand's ethics is not about a price point. It's about whether you're prepared to work hard at ethics and recognise that sourcing in the developing world carries with it associated risks. It's then having the expertise to know what to look for, as opposed to going into a factory, ticking a box and saying you've done an audit."

Collaborative approach

Lister heads up an ethics team of over 60 people to manage the ethical trade programme, and undertake Primark's audits – of which 2,412 were carried out in 2014 – including the recent hire of a structural surveyor. This is soon to expand to 80 as the retailer looks to build "inter-relationships" with its suppliers – something it sees as crucial if effective sustainable progress is to be made. 

Lister is quick to admit, though, that the job of overseeing a brand's supply chain requires collaboration and is impossible to do single-handedly. "We can sort out individual issues within our supplier factories but what we can't do is sort out a minimum wage."

Primark is signatory to a number of ethical and environmental schemes, including a board member of the Ethical Trading Initiative (ETI) – an alliance of companies, trade unions and voluntary organisations that work to improve the lives of workers who make or grow consumer goods. 

It was also the first UK retailer to sign the Accord on Fire and Building Safety in Bangladesh, and has joined forces with the UK's Department for International Development (DfID) on a number of projects, such as focusing on women's economic empowerment, market development, and disaster response in Primark's five key sourcing markets – Bangladesh, Pakistan, Myanmar, Ethiopia and India.

There is also the HERproject, on which Primark has partnered with consultancy Business for Social Responsibility (BSR) since 2011 to provide healthcare and health education to women working in its supplier factories. And, more recently, the retailer extended its sustainable cotton programme for women in north-west India for a further six years.

Lister is at pains to point out that Primark has had a keen eye on its supply chain for more than a decade, and that this is not just a result of the Rana Plaza building collapse three years ago – although he admits the "effectiveness and the learning" has certainly improved since the disaster, hence the more recent appointments of a structural engineer and a fire safety official. 

"We're not trying to catch people out, we want it to work, we want a relationship. I don't want suppliers to fail an audit," he explains. 

"I sometimes get a bit cheesed off that [suppliers] work harder to try and trick us than they do to try and deal with the issue, and that frustrates me. But I would like to think the reason they do that is because they don't know how to deal with the issue. It's about building trust with the supplier so they can be more open with us."

Sourcing map

For the most part, Primark's sourcing map has remained relatively unchanged over the years, and Lister says the group was firm in its decision to continue sourcing from Bangladesh when others looked elsewhere after Rana Plaza. 

"We stayed and were very clear we would work in Bangladesh to get things right. You've got a workforce of millions of people who depend on this, so it's completely wrong for brands to say they're giving up on Bangladesh. It's not the country you're sourcing from, it's individual factories. You can, from time to time, give up on factory owners, but that is an extreme event and you need to understand the impact of that on the workforce."

That said, Primark is not following the route of many other brands and retailers when it comes to publicly publishing its supplier list, even though it agrees there is an increased need for transparency in the global apparel supply chain. Lister says he "doesn't see the need" to release such a "commercially sensitive" list because it changes as the retailer grows.

He does, however, admit that Primark's recent foray into the cut-throat US retail market may shift its sourcing strategy slightly. Its first stores opened in Boston and Pennsylvania in September last year, and there are plans to open a further nine by the end of the year.

"We are still learning in the US, and it may mean that we look closer to America for some of our lines that we would otherwise look to Turkey and Eastern Europe for. But you need scale to do that. We're going in with what we know and then we'll learn, just as we did with our other markets."

Indeed, outside of the UK Primark operates 134 shops in the Republic of Ireland, Spain, Portugal, Germany, the Netherlands, Belgium, Austria, France and the Northwest USA, accounting for around 44% of the group's 302 stores.

Over half of Primark's GBP613m investment last year was spent on expansion and that is likely to be a trend that will continue into the current fiscal year as the company adds Italy to its portfolio, and of course its additional US stores. 

Despite the expansion, Lister says there will likely be little change to Primark's business model over the next few years. And he is confident the company has the right strategy in place to ensure it continues to operate efficiently and ethically.

"We've set our flags out and, certainly from an ethics point of view, we're going to continue making sure we're effective. We know what we're looking for, we know how to deal with it, we just need to keep on finding the most effective ways of doing it.

"I know we have the expertise, but it's making sure we are on the ball and are working really hard, with rigour and integrity, looking for those issues."