Yesterday’s announcement that Primark will lease about 520,000 square feet in seven locations from Sears Holding is of great concern to me. The Sears properties they are going into are in prime locations in the Northeastern part of the United States. In my May 21, 2014 blog post, I described this Irish company as a scary, low priced fashion retailer with a contemporary flair. The merchandise, which I have seen in Europe is of very good quality, is well designed and is sold at very, very low prices. This is what makes Primark “scary.” Primark focuses on basic merchandise that youngsters need – “throw away merchandise” – but is in step with today’s consumer mood.
Primark is lead by CEO George W. Weston. The company is headquartered in Dublin, Ireland. It is a subsidiary of Associated British Foods plc. It has about 278 stores in Europe. That includes 38 stores in Ireland called Penneys (no relationship to the U.S. chain).
The first Primark store will open in Boston in late 2015. It will occupy the former Filene’s space in Downtown Crossing. At the time of the announcement management of Primark indicated that they would open warehouse facilities and that about 15 additional stores would open in the Northeast in 2016 and beyond. So, now we know that the first of the additional stores will be 100,000 square feet and will open in the King of Prussia Mall near Philadelphia, Pa., where Sears will completely withdraw and make room for Dick’s Sporting Goods as well. There will be also a Primark Store in the Staten Island (New York) Mall. That store will be 70,000 square feet and be adjacent to a 70,000 square foot Sears store. These stores will both open in 2016. The other five locations have not yet been announced.
For the first time I agree with Eddie Lampert, chairman of Sears Holding that the company can exit from existing Sears and Kmart locations and rent them to a quality retailer like “Whole Foods, Dick’s Sporting Goods, Nordstrom Rack,Forever 21 , Corner Bakery, West Elm and Aldi and Primark.” Sounds terrific?
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Well, I am terrified. Currently, the area that Sears now occupies in shopping centers throughout the U.S. is fallow, with few customers, and fewer retailers who want to be around a dying dinosaur. When the new tenants come on the scene, they will bring an entirely new group of shoppers to the mall—and certainly to the old Sears space. These consumers will be young, on a limited budget, and they will buy great quantities of the low-prices merchandise being offered. They will bring renewed strong traffic to the mall but they will also cheapen the mall and its reputation. Aldi is another rock bottom priced retailer. The inclusion of Aldi, the German deep discounter of primarily food, on the list of potential tenants suggests that negotiations are likely under way to lease some of the Kmart properties. Aldi certainly won’t elevate a mall’s image. Notably Aldi is currently promoting some basic fashion merchandise in their food stores.
Stores, like Primark, adjacent to Sears will hurt Sears unless Sears concentrates only on hardlines that fill customer’s basic needs. While I lament that Craftsman tools and Die Hard Batteries are now available at other retailers, they, together with Kenmore appliances, are still Sears’ hallmark brands. Even though I view Primark as a traffic generator, and Sears needs traffic, this announcement startled me since it means additional properties could be leased to Primark by Sears as the Primark name becomes familiar and its merchandise becomes accepted by U.S. consumers. I had expected that Primark might end up as a subtenant to J.C.Penney, Kohl’s or Macy’s—and build traffic at lower price points in those stores—but now we know. Sears must have offered the best deal for what Primark needs and wants in the U.S.
There is always a retailer that will sell merchandise cheaper than the previous cheap retailer. It was Mickey Drexler who told me that Old Navy was just selling cheap fashion merchandise. Now we will see what cheap fashion merchandise really is.
Date: October 21, 2014