Billion dollar baby
As Poundland is now offering a selection of products priced up to £30, what are the implications for discounters in the UK? We believe a lot can be learned from how US dollar store retailers have recently adapted their offer.
Dollar store retailers began in the US in the early 1900s, soon after the emergence of five and dime stores in the 1870s. Today the dollar and variety store market is dominated by two operators: Dollar General and Dollar Tree, who acquired the other major player, Family Dollar, in 2015. Between them they operate c.26,500 stores and have a 63% share of this $66bn market.
Since the recession in the US in 2008, consumers have become even more value-driven and dollar retailers have responded by expanding product categories beyond household products towards groceries, apparel and tobacco. And as they have grown, these retailers have become more sophisticated in their approach to distribution and marketing.
Many of these retailers have realised the constraint a fixed $1 price point places on growth. Currently, only one quarter of Dollar General’s product range is priced at $1 and while the company aims to keep the majority of its products priced under $10 it is not uncommon to find higher priced items in store or online. For example, if you are in the market for an HDMI Streaming Media Adaptor, Dollar General has one available and in stock for $50.
By broadening product categories and introducing multiple price points the value-focused, variety retailer has re-emerged.
Although Woolworths’ demise in the UK remains etched in retailing memory, variety stores never really went away. Indeed, value focussed variety retailers, such as B&M Bargains, have been extremely successful and European retailers such as HEMA continue to open new stores in the UK.
However, businesses will have to be careful establishing the appropriate level of variety. Offering low-priced bedroom furniture, for example, would have implications on the business model (store size, location, service model) and operating model (category buying and fulfilment capabilities). To successfully address such issues, retailers will need to collaborate or consolidate within the value retail sector where there is a breadth of general merchandise and specialist retailers operating.
Highlighting this potential is the recent acquisition of Poundland by Steinhoff International. Poundland is to expand its category offer with ten of its stores offering apparel, which will be provided by PEP&CO, another retailer within Steinhoff International’s UK stable along with Harveys, Bensons for Beds and Guess How Much! How this group of companies interacts in the future may be a guide for others looking to move beyond the £1 price point.