While the current economic recession has been the bane of many sectors of business, some have capitalised on the increased price-sensitivity of modern consumers through discounting. Nowhere is this more evident than in the case of discount retailers, who are now enjoying a real purple patch in the UK as consumers continue to feel the squeeze.
Increased costs of necessities such as food and fuel have hit British buyers hard, decimating their disposable income. With UK consumers tightening their coffers, saving has become of paramount importance and low cost options that don’t compromise too much on quality are highly valued. Britons have always had a keen eye for a good deal, and with uncertainty still abounding this has become more so than ever.
As such, this has afforded discount retailers with an opportunity to prise away market share from more upmarket rivals, who continue to struggle under the duel pressures of reduced discretionary spending and (in some cases) online shopping.
Since the demise of Woolworths in 2008, a plethora of British discount retailers have risen to the fore to fill the vacuum left behind, fuelled by the wider economic decline that has ensued. One such company is Poundland, whose profits this year rose by 27% - amounting to over £40million – testifying to its appeal to British consumers during tough times.
Growth of this magnitude has been enabled mostly by widening the chain’s appeal to include middle-income buyers seeking out lower cost alternatives during leaner times. This has been helped by the provision of household brand names in Poundland outlets in an attempt to heighten its appeal to a middle-income demographic. The company now services over 4 million UK customers per week, having opened 62 new stores in the past year. Such has been its success that it now harbours plans for overseas expansion, with continental Europe providing another potentially lucrative market.
Poundworld is another discount retailer that has registered similar levels of success, seeing its profits rise by a phenomenal 52% over the last three years. The company has 200 outlets in the UK (with another 250 on the way over the next five years) and has augmented its core brand with the addition of Discount UK and Poundworld Express in an attempt to facilitate the low cost requirements of a wider target market. 99p Stores have also attempted this to great effect. In January this year, the company saw its pre-tax profits swell by 13%. Improving its ranges across sectors varying from food to white goods has been paramount, supplemented by its Family Discount chain which – as its name implies – offers low cost alternatives for the entire family, engendering greater convenience in addition to discounts. Elsewhere, the success of Aldi and Lidl on the UK market is well known, while TK Maxx has grown its compliment of UK stores in recent times as demand for its low-priced clothes continues to soar
So where do franchises stand in all this? So far, they too have made efforts to enter this lucrative market. Through franchising, discount retailing has permeated the online space in the form of 99p Shopper, which now offers franchise opportunities throughout the UK and Ireland. Another franchise making waves on the British discount retailing scene is Cash Generator, which now has over 200 outlets across the UK and has augmented its discounted offerings through offering buy-and-sell and financial services, diversifying its revenue streams as a result. Costcutter is an example of a company that has used franchising to propagate itself in the convenience store and supermarket spaces, with its name testifying to its low-cost approach, a strategy that has yielded benefits in the form of 4% profit increases year-on-year. This year, Costcutter resuscitated another discount supermarket franchise, Kwiksave, which has proved so popular that it plans to open 20 outlets by year’s end.
While discount franchises such as these might seem prudent for the present, what is certain in the economic sphere is that nothing stays the same forever. Sooner or later, the economic outlook will improve, and with it will come a resurgence of consumer confidence flushed out with the increased discretionary kitty that inevitably accompanies affluence. When this happens, will discount retailers face a dramatic reversal of fortunes as British consumers move upmarket once more? Will the current emphasis on bargaining become yesterday’s news and assign discount outlets to deficits, leaving them a disdained legacy of leaner times?
Chief Executive of Poundland Jim McCarthy doesn’t think so. In an interview with The Guardian earlier this year, he claimed that such has been the impact of the current recession that it has permanently altered the shopping habits of the British consumer, instilling a frugality that is likely to last long after the current downturn has run its course. The proliferation of price-comparison sites and smartphone shopping has made finding bargains easier than ever before, demonstrating the lasting commitment of the modern consumer to seek out value regardless of the fluctuating state of the economy.
As long as this remains the case and deals are valued, discount retailers will always have a substantial market to cater to and a role to fill in the British retail scene.
Wood, Zoe, 2012, Discount stores boom as upmarket shoppers boast of saving money, The Observer (online)
Kollewe, Julie, 2012, Poundland profits up 27% as squeezed shoppers try to save money, The Guardian (online)
Zientek, Henriek, 2012, Poundworld among top 100 for growing profits, The Huddersfield Daily Examiner (online)
Poulter, Sean, 2012, Rise and rise of Poundland: Middle England’s love affair with the budget chain that keeps on giving, Daily Mail (online)
Retail360 (online), Poundworld’s 200th store opens its doors
Holland, Tiffany, 2012, 99p Stores profit up but growth slows, Retail Week (online)
Hall, James, 2011, 99p Stores profits soar as Middle England snaps up bargains, The Telegraph (online)
The Telegraph (online), 2012, Primark-owner profits rise as new shops open