The future is bright for value retail, with the UK discount retail market forecast to grow by nearly 40% in the next five years to £32.5bn (GlobalData). Discount and value retailers have been on the rise for many years, particularly since the recession of 2008 and the following years of economic stagnation, real wage contraction and unemployment. Growth has been particularly fruitful in the grocery sector – the rise of Aldi and Lidl has been well publicised - and while they will continue to grow by expanding their store portfolio and product ranges we believe a key area of growth to be in new sectors such as DIY, general merchandise and homewares.
Discount and value retailers have been more resilient to competition from online retailers simply because their prices are so low that it is difficult for them to be undercut.
So, what is going to drive growth in this market moving forward?
- The rising cost of living is squeezing disposable incomes and leading many consumers to place a greater emphasis on finding value. The return of inflation and the on-going economic uncertainty means this is unlikely to ease any time soon
- Discount retailers are no-longer just for less affluent shoppers: a recent study by Mintel found that as many as 77% of British consumers with an annual household income of over £50,000 visit food discounters. Discounters are now also providing premium ranges, at an affordable price-point, and have successfully marketed their quality credentials to more affluent consumers
- We believe DIY, general merchandise and homewares will deliver the strongest category growth. Discounters have expanded their ranges in these areas at a time when consumers are seeking to improve their homes on a budget. B&M are particularly well placed to benefit from this as it intensifies its store expansion programme away from its northern heartlands to the south.
We anticipate that consumers’ love for a bargain will continue to grow and there remains substantial headroom in the discount retail sector – the winners will be the retailers who can provide the right combination of value (both price and quality) and appropriate product offering.