The value sector has grown considerably over the past ten years, with three trends in particular catching our eye:
Value retailers have broadened their offering through organic expansion, partnerships and M&A activity. For example, H&M's home proposition began online in 2009 as a home textile concept. Fast forward ten years, and the home offering has broadened significantly, contributing meaningful revenues and occupying standalone stores. M&A can also be a powerful driver. Following its £610m acquisition by Steinhoff in 2016, Poundland introduced Steinhoff's Pep&Co's clothing range to 300 of their UK and Irish stores last year. The success of this symbiotic arrangement, leveraging their joint distribution network, recently saw Poundland announce its extension of the Pep&Co range to all 850 of its stores nationwide – as it begins to compete with the likes of Primark.
Partnerships have proven to be a valuable asset for value retailers looking to excite customers, challenge brand perceptions and grab headlines. Since 2004, H&M has collaborated with luxury fashion designers, from Karl Lagerfeld to Moschino, for collections that sometimes sold out in minutes. Uniqlo's collaboration with JW Anderson featured everything from herringbone to tweed and Estee Lauder recently partnered with streetwear retailer Kith on a limited-edition skincare kit which sold out online in three minutes. Even cartoon mice are getting in on the act: Primark's massive new Birmingham store houses The Primark Café with Disney alongside a dedicated Disney Store.
The growth of the value sector is not being left to the core value retailers alone. Consider the diffusion model, which began in fashion, where luxury brands launched secondary lines at more affordable prices, such as Emporio Armani, D&G, and PS by Paul Smith. These diffusion lines became key channels for customer acquisition and smoothing out revenue cycles. In a similar vein, Tesco launched Jack's in 2018, a no-frills discount chain. By competing with the hard discounters on their own terms, while also offering features such as Smart Shop that enable customers to scan as they shop, Tesco is fighting back against the growing threat of Aldi and Lidl. Buoyed by the "strong response" to new openings and its `Buy More, Save More' messaging, Tesco recently opened their ninth Jack's store.
Continued proposition diversification and the development of ever more ambitious partnerships sit at the heart of the value retail growth story and present retailers, brands and investors with opportunities to maximise value for shareholders, partners and consumers.
Furthermore, as we have seen with Tesco's Jack's offering or Dutch billionaire Marcel Boekhoorn's acquisition of Hema, players from outside the sector are increasingly applying their own take on an age old mantra: if you can't beat them, join them… or buy them.