Major change on its way: the Race to the Bottom; Led by Primark and Alibaba

There is a race to the bottom underway in international retailing and it is about to accelerate. There will be casualties.

The success of the Primark stores in Continental Europe is evident, attracting hordes of young shoppers. The Primark stores carry fashion merchandise that is well designed, of good quality, with contemporary flair, at really low prices. By observation, Primark is cheaper than fast fashion retailers Zara, H&M and Forever 21. Primark’s expansion as a retailer will be aggressively trying to gain share of market via brick and mortar stores.  This success will come through strong merchandising and very promotional pricing.  In the US and Europe there are many shuttered stores of major companies that could be attractive real estate for Primark. Many of these buildings are in prime locations in malls and would generate traffic with a concept like Primark.

The same is happening in online retailing as well.  Alibaba, who is going public shortly, will soon dominate the Internet through strong merchandising and very promotional pricing that will probably rock Amazon and all other Internet retailers. That means we have are two new ruthless competitors worldwide seeking to seize the lowest price position in the marketplace. This is happening at a time when all retailers are trying to respond to the customer’s demand for value offerings by focusing on lower prices and inexpensive outlets.

When one understands the retail environment, one knows it is unrelentingly promotional.

In retail experience learns that there is always someone who can create a cheaper mousetrap. Discounters are selling at much higher prices than Cash & Carry and wholesale clubs. Wholesale sells at higher prices than Internet discounters.  Now there is a new wave that will undercut the current leaders.  That is worrisome. The downward price spiral has almost gone too far, too deep and too fast. Retailers need to make a reasonable profit and customers should enjoy shopping at a less frantic pace.  In the new environment this could sound like a dream.

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