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Discount retailing market led by Aldi, Lidl and Primark

Industry Sector

Retail

Published

14 January 2013

Author

Mike King

Type of News

Market

The discount retail market is beginning to boom as upmarket shoppers are starting to try and save more money.

A discount store is a type of department store, which sells products at prices lower than those asked by traditional retail outlets. Most discount department stores offer a wide assortment of goods; others specialise in such merchandise as jewellery, electronic equipment, or electrical appliances.

Discount stores are not variety stores, which sell goods at a single price-point or multiples thereof (£1, $2, etc.). Discount stores differ from variety stores in that they sell many name-brand products, and because of the wide price range of the items offered.

Once shoppers are used to discounters and find product quality to be satisfactory, they are likely to continue being regular customers even after the economic recovery is underway.

Customers of these stores are looking for convenient shopping, with a variety of merchandise under one roof, at low prices. These retailers must be able to differentiate themselves in order to become a consumer's first choice.

The example of Germany, where around 90% households shop regularly at discounters, highlights the major growth prospects in other European markets. Despite the channel's maturity in Germany, with sales growth likely to slow, additional sales of over US$2 billion are forecast between 2012 and 2017.

Currently Wal-Mart, the largest retailer in the world, operates more than 1,300 discount stores in the US, Target and Kmart are Wal-Mart's top competitors. In the US, discount stores had 42% of overall retail market share in 1987; in 2010, they had 87%.

In the UK, the march of the discounters continues with Aldi attracting 10% more shoppers in the three months to December 2012, and benefitting from 17% growth in the value of each shopping basket.Discount retailing

Aldi, which increased its share of the UK grocery market to 3% from 2.5%, plans to open another 40 stores next year, taking its total to more than 500. Some of these will be smaller highstreet stores as the discounter tries to grab a bigger share of the convenience market. Discount rivals Lidl and Iceland enjoyed sales growth of 11% and 9.2% respectively.

The runaway success of chains such as Primark - known in some quarters as "Primarni" for its cheap chic - as well as TKMaxx, Aldi and Lidl, has helped remove the stigma associated with value retailing.

Expansion opportunities for discounters and fixed-price variety stores remain strong in many developed markets, notably the UK and the US, as the economic downturn boosts these formats.

However, intense price battles against supermarkets, hypermarkets and internet retailing may reduce margins and undermine longer term growth, while global grocery retailers may seek to acquire discounters and fixed-price variety store players.

For more information on the discount retailing market, see the latest research: Discount Retailing Market

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