Subtitles section Play video Print subtitles - [Narrator] Let's say you wanted to buy this Primark T-shirt. If you're shopping on Primark's website, you'll quickly discover that you can't. (buzzer dings) Over the past 10 years, e-commerce sales have more than doubled. But last year, European fast fashion retailer Primark made 9.5 billion in sales revenue without a single penny from online shopping. - We made a very clear choice and our clear choice is bricks and mortar. - [Narrator] This comes at an uncertain time for struggling clothing retailers. Retailers like Forever 21, JC Penney, and Neiman Marcus have closed stores and filed for bankruptcy. And while a UBS report shows up to 80,000 retail stores will close in the next five years, Primark plans to expand to 60 stores in the same timeframe. - [Speaker] Is driving two hours from Toronto to Buffalo to shop at Primark worth it? Heck yes, I used to fly six hours to do so. - So how is Primark expanding without online shopping? This is the economics of Primark. - Fashion retail is incredibly competitive, more so than ever. There's not many players, especially in fast fashion that are making fat margins. Pretty much the thinking everywhere is that you have to have this online presence. - [Narrator] But online shopping is actually incredibly expensive for retailers. - You have to have a logistical hub from which you would dispatch the goods and then you'd probably have a local distribution center from which you have to do last mile delivery. Each step of that just is an extra layer of cost, it just eats away at the margin at which in fashion is very, very slim anyway, but the real killer for e-commerce is somebody who buys something on the internet is far more likely to return that product than somebody who goes into a store. - [Narrator] Returns are one of the biggest profit losses for online retailers. On average, processing a return for $100 worth of merchandise bought online costs a company 26.50. For years, online retailers just ate these expenses. Only now are more of them deciding to pass the cost back to the consumer. - Primark have just stayed right from the beginning, we don't think we can make money out of e-commerce. We're not even gonna try. We're gonna focus all our resources on the physical store and protect our margins. - [Narrator] And that wasn't an issue for the retailer until. - Now Primark is expected to close all 189 of its UK stores tonight and it doesn't have an online offering to fall back on. - E-commerce was a lifeline for a lot of retailers during the pandemic. They couldn't open their stores, but they were still able to make some sales on the internet. - [Narrator] But Primark didn't budge, even as consumers urged for it to offer online shopping and even after its revenue dropped by almost 2 billion pounds. - And I think their confidence in this model of having no digital sales and only using stores I think, was probably shaken by the pandemic. Who knows what would've happened if it had gone on for longer? I think the closures weren't quite long enough to really tip the scales and force them to fundamentally rethink the model. - [Narrator] Instead of traditional online shopping, in 2022, Primark launched a trial service called, Click and Collect in select UK stores. Customers can select certain products online, then pick up their orders in store. So Primark still has some cost to maintain its website but it's cheaper than running a true online shop. - So Primark makes a sale, but they don't have any of the logistical costs that would be involved in packing it up and then shipping it out to your home. - [Narrator] And there's another bonus for Primark. Since the customer has to go inside to collect their purchase, they're likely to browse around and maybe even buy more. - They make the sale online, but then they have a good chance of making some extra sales when that person visits them. - [Narrator] Consumer psychologists call this shopping momentum. Essentially, once you've already decided to make a purchase, it's easier to justify adding more to your cart. - It always feels just overwhelmingly busy with people who are in there looking for bargains. - [Narrator] And it's not just clothing. Primark lures consumers with beauty, home, and travel products similar to a department store. - What we like to say about Primark here in the US is that we're all treasure without the hunt. - [Narrator] So customers may go in for a new t-shirt and leave with a suitcase. - [Speaker] Primark that I can drive to and don't have to fly to is a dream because that means there's no limit to what I can buy and bring home. - [Narrator] To carry this vast selection of items, Primark finds large retail spaces because it relies on selling a lot. It's one of the largest retailers in the UK by volume and one of the largest across all of Europe. Last year, Primark made about 9.5 billion in sales revenue in part by selling a lot of things at low profit margins. And it does this by sourcing a lot of its clothing from Asia. Combined with not offering online shopping, this enables Primark to sell its merchandise at lower prices, even lower than many other fast fashion retailers. - Where they do have serious rivals on price is with the digital only players that like Shein for example, they are often even cheaper than Primark. - [Narrator] But according to The National Retail Federation, 80% of shopping still happens in store, giving Primark an edge over its digital only competitors, even so, its in-store shopping model got off to a rocky start in the US. Primark opened its first US store in Boston back in 2015. Although it was already popular in the UK, its US expansion started slowly. Over four years, it opened nine stores. After years of experimentation, Primark learned it would have to change to succeed in the US. - When we first opened, we took a similar store size that we would've had in Europe. - [Narrator] But when Primark opened its stores across the northeast, it struggled to find the right store density. - What they found in the US is that retail is so much more competitive. There's a lot more retail in downtown areas in the US than there is in the UK, for example. So you just can't support a massive store. It's just not possible to get enough revenue for the size. - To support its large store sizes, it needed a lot of foot traffic. But unlike the UK stores which were located in constantly busy areas, US stores were mostly in malls where during the week, foot traffic dwindled. - We learned that actually, 35,000 square foot of retail selling space is actually the sweet spot for us. - They didn't face the commercial pressure that a publicly owned company might have faced to suddenly open 100 stores and get really big really quickly and then possibly risk disaster because they hadn't thought it through. - The culture of Primark has always been to take our time and to test and learn. And we've done that in every country where we've introduced the brand. This wasn't about growing market share at all costs. - [Narrator] And the overall retail market is shifting. Online shopping hit a peak during Covid, but now, growth is beginning to slow as people return to stores. - And I think that's never been so important as it is since we came outta Covid.