Pep&Co became the new kid on the block in the UK high street discount market in July 2015. The business sells a range of clothing and homewares, and on opening had ambitious plans – outlining the potential for the brand to be the ‘George of the high street’ and having an aggressive store opening strategy (50 new stores within the first 50 days of launching). But, in a market which is incredibly competitive - particularly at the value end - were these ambitions overly optimistic or does there exist a gap for a new player like Pep&Co to take advantage of?
We think there are reasons to be optimistic about Pep&Co. Firstly, Pep&Co’s product offering is tailored to young mothers looking for bargains, with school polo shirts starting at £1 and 95% of products being priced at £10 or under. As well as offering childrenswear, the retailer stocks mainstream womenswear in addition to smaller menswear and homeware ranges. With a lack of comparable fashion offerings on the high street, Pep&Co is targeting a gap in the market.
Secondly, Pep&Co has selected secondary high streets such as Sunderland and West Bromwich for its stores, where there are a relatively high proportion of shoppers from lower socio-economic groups with a greater appetite for fashion at low prices. In addition to this, secondary locations have the benefit of lower rents.
Furthermore, fifty Poundland stores are to open Pep&Co concessions, expanding its brand reach even more.
However, there are also reasons to be cautious. Although there may be a lack of competition on the high street, the wider value fashion market is ferociously competitive. The market is dominated by the likes of Primark, Tesco and Asda, and to be successful Pep&Co must ensure its offer has superior appeal whilst maintaining a good value proposition. On our store visits, the value messaging was clear with large, bright signage at the storefront pointing out deals and ‘round pound’ prices displayed in-store.
Pep&Co must also be wary of the potential impact of Brexit moving forward, with inflation on the horizon and currency depreciation putting an upward pressure on cost. The business is likely to be hesitant to pass on these cost increases to the consumer as they will be particularly price sensitive, and absorbing these will have a negative impact on margins. Volume and scale will be very important for the business to be sustainable and to help it secure lower prices from suppliers. To achieve this the range may have to widen to cater to the increasingly style-conscious consumer.
If Pep&Co can provide the right combination of convenience, product offering and value, we believe it has the potential to succeed.