Pepco, the 'Primark' of Polish origin, seeks its niche in Spain with stores in shopping centers

A very similar strategy to the one followed by Primark until 2015, the year in which it opened its megastore on Madrid's Gran Vía and changed its business model, until then linked to establishments in shopping centers, especially those located in population centers on the outskirts of large cities.

That is the same path that Pepco is now following, a chain of textiles and household items that, in just a few months, has exceeded 40 establishments in Spain and that bases its commercial strategy on 'low cost'.

And it is not the only link or similarity between the two companies. Primark is part of a business conglomerate that is not only linked to textiles. Its parent company is Associated British Foods (ABF), a British giant in the world of food that, for example, in Spain owns sugar bowl.

Pepco is also part of a broad business structure that functions as an umbrella and where other businesses, such as mattresses, fit. The chain was born in Poland just two decades ago and that is where it has its headquarters, in the town of Poznań.

Above the brand is another company called Pepco Group. It is a listed company, which entered more than 4,000 million euros in 2021, and which integrates not only the chain that gives it its name but also two other brands that operate in low-priced mass consumption. On the one hand, Poundland, in the United Kingdom. On the other, the similar business that it maintains within the European Union, Dealz. A banner focused on the sale of food, drink and drugstore products, where most items are sold at a price of 1.50 euros. In the UK, Poundland sells the products for one pound.

But its structure does not end there: above Pepco Group is Pepkor SA, a South African retail conglomerate; and Steinhoff, which is also based in the same country. The latter not only operates in Europe and in its domestic market; also in the United States, although with a different business. There you have Mattress Firm, specialized in mattresses. Meanwhile, in Australia, the South African group is focused on furniture and decoration through the Greenlit Brands brand.

With all this structure behind it, Pepco began its development in Spain in 2021 and its advance through the West of the European Union. At the end of that year, it had 2,377 stores in 11 European markets. And it has defined its next steps: Portugal, France, Germany and Greece, as broken down in a presentation to investors.

His impulse to step on the accelerator is evident in that same presentation, made to the market in the middle of last March. Currently, Pepco Group has 3,500 stores in Europe, of which a thousand correspond to the Dealz-Poundland brand duo. He assures that, for the next decade, he has identified opportunities to open more than 11,000 stores in the target markets. As a comparison, although they are not similar businesses, Inditex has more than 6,400 stores among all the markets in which it operates; Primark has set a goal of reaching 530 stores by 2026.

In that same presentation about its store model, Pepco assures that in the Western European markets it seeks to increase the weight of the low-cost business to 20% and sees the potential to raise that figure.

It also indicates that these countries have a population of more than 420 million people with a polarization between income levels. Aside from those plans, he also acknowledges that the war in Ukraine may have an impact on his business and supply chain.

At the moment, the company does not reveal what its opening plans are in Spain. This is what a company spokesperson tells; but she does point out that it is one of her priority markets.

It does not plan to change its plans due to the inflationary context. In fact, if it stays in the same direction as Primark followed nearly two decades ago, times of economic stress are often a positive for low-cost brands. For example, in 2012 Primark tripled its profit in Spain and earned close to 15 million euros.

Now, in the current inflationary spiral, Primark has recognized that it has to raise prices of some products and Inditex has also assumed increases that, on average, are around 2%. At the moment, Pepco does not contemplate it. "We are going to continue with our expansion agenda while reducing the cost of our business," the company argues. "This will allow us to offset most of our input inflation and protect prices," adds the Polish-born company spokeswoman.

In the annual report of its last fiscal year, the company Pepco Group already explained that between the renegotiation of terms with its suppliers and the optimization of stocks, it had improved its working capital by 129 million euros during the year.

That same report does not break down the production chain by country and number of factories with which its suppliers work. It does point out that "the group supplies its own-brand products" from three markets: China, India and Bangladesh.

And, although it does not break down the distribution of factories, it indicates that "all its factories are audited by the Pepco Group Compliance department, at least once a year, in accordance with local laws and the company's code of conduct. In fiscal 2021, we conducted 1,574 factory audits with a 78% pass rate," the report said.

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