Primark v Peacocks analysis

by arslankhawaja (student)

University Degree Business and Administrative studies

2.3.2a Managing the Provision Process

Primark v Peacocks

Primark and Peacocks are two similar types of clothes retailers, both operating at the discount or lower price end of the market. In 2011, and into 2012 Primark performed strongly, recording a 16 per cent growth in sales in the sixteen weeks to 7 January 2012.

An announcement in January 2012 stated that Peacocks was going into administration with half of the Cardiff headquarter staff losing their jobs as a result of the business being unable to restructure debts of £240m. On 22 February 2012 administrators announced that Peacocks had been sold to Edinburgh Woollen Mill, saving 6,000 jobs but 3,100 staff would be made redundant.

Edinburgh Woollen Mill also announced that 224 stores would close with immediate effect. Those areas heaviest hit would be those within close proximity to successful Primark and Matalan stores. It was hoped that once the supply chain got moving again that Peacocks would re-assert itself as one of the leading High Street fashion and clothing retailers.

The stores that have been forced to close are those with performance issues and overhead pressures. Whilst exact details for each store closure have not been released it is known that whilst Primark is achieving sales, on average, of £420 per square foot of its shopping space, the figure for Peacocks was only £200 per square foot. Clearly there is a large gap between performance levels.

An article in the Guardian in March 2012 compared visits to Primark’s and Peacocks and gave Primark’s a slightly higher rating, although the visit to Peacocks was on the day after it came out of administration and the stock issues (lack of) may have been down to uncertainty regarding the future of the store visited.

The Guardian conducted a poll, asking readers to choose between Primark, Peacocks, or ‘other’ for shopping, produced the following results:

Primark 58.1%

Peacocks 21 %

Other 20.9%

The article in the paper drew comments from 53 respondents. Generalising, these comments appeared to fall into two camps – those, who because of low budgets, were delighted to buy such cheap clothes, despite the untidy nature of some of the stores, and those who worried that a tee shirt could be bought for only £3. The implication behind these sorts of comments was that sweatshop labour may have been used.

(Sources and )

Questions

Explain one reason why the evidence suggests that capacity utilisation is higher in Primark stores than in Peacocks. (4 marks)

Analyse which aspect of the design mix is likely to be more dominant in the product design at stores such as Primark or Peacocks. (6 marks)

Much of Primark’s clothing range is manufactured abroad. Analyse two reasons for this. (6 marks)

Assess the need for Total Quality Management (TQM) at clothing retail stores at the lower end of the price range. (10 marks)

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(Sources and )

Questions

Explain one reason why the evidence suggests that capacity utilisation is higher in Primark stores than in Peacocks. (4 marks)

Analyse which aspect of the design mix is likely to be more dominant in the product design at stores such as Primark or Peacocks. (6 marks)

Much of Primark’s clothing range is manufactured abroad. Analyse two reasons for this. (6 marks)

Assess the need for Total Quality Management (TQM) at clothing retail stores at the lower end of the price range. (10 marks)

What recourse do consumers have if they find that purchases made at Primark’s or Peacocks are not fit for purpose? (4 marks)

Evaluate the need for lean management techniques such as Just in Time in the retail clothing industry. (14 marks)

ANSWERS

Capacity utilisation is usually measured by expressing the capacity currently being used (as in floor space or machine usage) against the possible total capacity. This result is usually expressed as a percentage. (1 knowledge mark) The evidence notes that Primark are achieving sales, on average, of £420 per square foot, whilst Peacocks are achieving sales of £200 per square foot (1 application mark). This would suggest that Primark is utilising its floor space more expertly (1 app mark). This would support the view that Primark is performing more efficiently than Peacock’s and offers an explanation of how sales are growing at Primark (1 analysis mark).

The design mix consists of 3 elements – function, aesthetics and economic manufacture (1 knowledge mark). Given that Primark and Peacocks are at the cheaper end of the fashion market, the aesthetic element (beauty) of the design is not likely to be of paramount importance (1 application mark), as this would need greater time and expense to achieve (1 analysis mark). Candidates may justifiably choose either function (what the product does) or most probably economic manufacture (the cost of production) as the dominant aspect (1 application mark). Given the cheapness of products - e.g. tee shirts on offer at £3 each, it can be argued that the most important aspect of the design mix is economic manufacture (1 analysis mark).

Manufactured products can be either labour intensive or capital intensively produced – or a combination of the two (1 knowledge mark). The greater the degree of labour intenseness, the more likely the cost of production will be high, with a price to match (1 k mark). Relatively high minimum wage levels coupled with extremely tight health and safety procedures and high overheads in the UK mean that the cost of production of clothing items is likely to be higher than in some overseas areas (1/2 application marks).

In countries where there is an abundance of labour and an absence of minimum wage structure, costs of production of long production runs (of say tee shirts) are likely to be relatively low (1 application mark). Primark will be able to sell at cheaper prices in the UK if the benefits of the cheaper cost s of production are passed on to consumers (1 analysis mark). Furthermore the greater volumes achieved will lead to increased profits and perhaps improved margins as sales increase (1 analysis mark).

Typically this 10 mark question would have a mark allocation of 2 knowledge, 2 application, 3 analysis and 3 evaluation, although this may vary according to what else features on the examination paper.

Total Quality Management (TQM) involves getting all employees to focus on quality at every stage of production. The idea is to prevent problems occurring by a process of continual checking at each departmental level (2 knowledge marks).

This would mean that in firms such as Primark, Peacocks and Matalan, management has to get employees to ‘buy into’ the culture of zero defects. Considerable expenditure on training would be required in order to achieve the standard of product quality in clothing that is required (2 application marks)

It could be argued that this level of quality is not needed at the cheaper of the market and that consumers would not be looking to get regular usage from a fashion product. It may also be too costly to implement given the low prices of the products, as the training cost would have to be absorbed into the unit cost However this approach should cut waste and save money (3 analysis marks)

It could further be argued that the customer expects quality at all levels and is well aware of the reason for low prices, i.e. the customer expects quality as(s)he is aware of the low wages paid to workers, and is also aware of the profits being made. Furthermore there is much competition at this end of the market and it could be also be argued that the reason Peacocks have had financial problems is that they were perceived as not being as good value for money as Primark.

As customers become better informed they will come to expect quality whatever the price and who ever is providing the goods (3 evaluation marks).

Consumer Protection legislation is designed to give consumers reassurance as to the quality and purpose of a purchase (1 knowledge mark). Just because goods at Primark and Peacock’s are relatively cheap does not excuse the firms from providing them as fit for purpose. Goods must also not harm consumers nor should any information on packaging mislead them (2 application marks). Consumers should be able to return any faulty goods within a reasonable time period to the store and be given a refund or take a replacement should they so wish (1 analysis mark).

Lean Management in its simplest form means minimising waste. This waste can be of any input into the production process such as time or material. The purpose of lean management techniques is to increase efficiency (3 knowledge marks).

The retail clothing industry is of a seasonal nature. The seasons are roughly based on variations of the weather; thus we have a winter, spring, summer and autumn season. The fashion industry is a fast moving one where forward planning is imperative. At the lower price end of the market, items of clothing are often copied, to a degree, from the dearer end of the market. The need to keep up-to-date is very important and having large quantities of unsold items can be disastrous (3 application marks)

Just in Time management of stock can alleviate some of these problems for retailers. The concept of JIT is well understood in a manufacturing context but can still be applied in retailing. Some stores in the retail clothing industry have relatively few items on show and would need to have suppliers who can replace fast selling items very quickly. The inability to do this would lead to missed opportunities for further sales.

It could be argued that at the ‘pile them high and sell them cheap’ end of the market, JIT is of lesser importance, as there is a large quantity of items in stock. However, the existence of seasons in fashion, and the quickly changing nature of the business, may necessitate a quick response and this is exactly what JIT is designed to achieve.

The potential problems of JIT are well documented, such as problems in the supply chain and potential logistical difficulties. Suppliers have to be relied on and a good relationship has to be forged between retailer and manufacturer, especially so when margins are tight and delay is costly. In many types of industry the ability to hold large quantities of stocks has been frowned on for some time; the retail clothing industry is no different in this respect. Ultimately retailers need to sell their stock. Being able to predict what will sell is part of the answer; knowing your customers is another. JIT may help to achieve the aim of a profitable outcome (5 evaluation marks)