Is the discount sector looking overshopped?

All the leading discounters, food and non-food, say publically that they have plenty of scope for growth. Their projections have always seemed ambitious and not always borne out in practice.

The latest bad news is from Blue Inc, which is trying to organise a second CVA in 12 months. This would involve shutting another 33 stores out of its remaining 127 stores, and that already severely cut back from its peak of 235.

Poundland was bought by Steinhoff in September of last year. Poundland had absorbed 99p stores a year before and there had been some store closures after that deal. Now Steinhoff plans to close another 80.

But at the same time, Steinhoff is pushing ahead with its PEP&CO discount format.

B&M is already suffering from cannibalisation of older stores by new openings.

There are other discounters that are known to be struggling. The obvious example is Poundstretcher which reported a drop in sales and profits in the last reported year and underperforms on key ratios.

A sheep mentality

There is a tendency for retailers to behave like sheep. As soon as a particular format seems to be doing well, everyone wants to try to do it. But few imitators do as well as the innovators.

That is what has happened in discounting. In food discounting Aldi and Lidl remain supreme, while Netto has closed down (twice) and looking further back Kwik Save failed as well.

In non-food discounting, there seems to be more space. Poundland and Poundworld prosper in the fixed price market, while B&M and Home Bargains lead the way in the broad range business and they are even trying to move in on food as well. It is that broader range business that PEP&CO is moving in to.


Primark is the main exponent at the lower priced end of the clothing market and its success highlights the challenges of the market, because there is very much more to Primark’s appeal than just low prices. It sells fashionable merchandise, even fast fashion, in attractive, exciting stores.

Primark has even been able to ride the onslaught of the online fashion retailers who are mostly focussed on the younger fashion market. Even H&M is faltering at the moment, but at least it is fashionable and a destination store at the lower price end of the market.

But that seems to be where Blue Inc has failed. Its offer of low priced basics has insufficient appeal. For much of its range it is caught between Primark and Sports Direct. The result is that a business that looked like a high flyer 5 years ago is now threatened with bankruptcy. And even if the CVA succeeds, will the company have time or the management to revitalise and refocus its offer.

The gap in the market

The point is that while people like a bargain and they like low prices, they are not enough on their own. In clothing they want fashionability, innovation and great stores as well. The rush to the bottom that we seem to be watching in retailing at the moment, means that the actual gap in the market is in the middle ground. That is one of the reasons why Next has been doing so well in recent years – it has too little competition. Bhs failed to compete and M&S had lost its way, while many others had shifted their offer to lower price points.

The success of some of the branded clothing retailers, notably, for example, Ted Baker shows that high prices are no obstacle if the merchandise is seen as worth paying up for.

Perhaps we are seeing M&S fight back, but we think there are more opportunities in the middle ground that M&S can satisfy. We need a challenger for Next. That is the opportunity in the market, not the lower, price led end of the market, where we think that Blue Inc and the Poundland closures are just the beginning of a shake out.

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