UK DISCOUNT RETAILERS
The UK discount retailers are booming, more to the point it is also seriously competitive.
So much so, the UK discount retailers themselves continually have to evolve their strategies, just to keep pace with competition.
These days of course there are two halves to the story, online and bricks and mortar.
Online, the big players are becoming really big. ASOS was recently given a market value on the London Stock Exchange around £5 billion, similar to Marks & Spencer, a FTSE 100 Company.
M & S is bricks and mortar and not a discounter, they have been struggling to maintain market share in these times of online boom, and high street decline.
The day the price was made news, ASOS had just opened a new 290 car overflow car park at their Grimethorpe distribution centre, to cope with the extra staff already recruited and also the extras that will be needed, for the Christmas rush. Their sales are also rather interesting as UK and Europe aside, they are selling into Hong Kong the China mainland, South Korea, Singapore and all points east, plus Australia and USA. Next are also on a roll, although just lately they have struggled to keep the large increases in sales, but this might be just the fact they are aiming more at the UK and European markets. Although that said, Shop Direct owners of Very and Littlewoods have managed to increase sales, however they came mainly from the Very.co.uk site.
Wal Mart would crush its UK opposition
The UK discount retailers are of course dwarfed by Amazon, however it is worth making the note that Wal Mart stormed into the UK retail market by buying an existing supermarket chain, the Leeds based ASDA. At the time reports of doom and gloom came from the States saying that Wal Mart would crush its UK opposition. Well firstly Wal Mart entered UK at just the wrong moment, because WWW was just getting into swing. Plus they underestimated the very competitive nature of UK discount retailers, and also the different way UK does its shopping. In USA people have lots of storage at home, so will buy bulk, in UK it is less so. Yes we do on occasion buy bulk, but most of the time we shop for the week or fortnight. Shopping habits in UK continue to change just to add to this confusion.
Amazon appears to have a total control of online shopping, but as can be seen, this is not written in stone. Personally I might sell through Amazon, but I cannot recall the last time I purchased anything, Ebay is my preference, and it is because I can buy from smaller UK discount retailers, giving cut price bargains. Also although Amazon are big doesn’t make them better, but also the whole nature of retailing has always changed and will continue to do so. Competition forces this, AO.com is another online UK discount retailer that has had a big impact, lowering prices on white goods and big ticket items.
What all this adds up to is a healthy scene via online UK discount retailers.
relied on a limited number of best sellers
Now the bit you might have overlooked, is the so called bricks and mortar retailers. Firstly most are dispersed, they are on the high street, retail parks, or sole supermarket locations. Aldi and Netto were the first foreign supermarket discounters back in 1990 to open in UK, Lidl followed in 1994. At that time UK had Kwik Save which was very similar to Aldi and Netto, they all relied on a limited number of best sellers, the staff had to know the price of every item in the store. Kwik Save was set up on the same basis, the simple reasoning was that no individual item had to be priced, this cut down costs. For younger readers, there were no bar code scanner systems that were cheap enough to install back then, so limiting the number of items, allowed staff to remember the price of everything in the shop, so they could just punch the price into the till or cash register as they are known in US.
Aldi were the ones who took cost cutting to the extreme. If you go into M & S you will never see a pallet or any major delivery packaging on the shop floor. If you worked for M & S and placed a pallet on the shop floor, you would be given a verbal warning.
Go into an Aldi and, the chances are you will probably see a pallet or at least a large box with stock or waste, blocking at least ¾ of the width of an isle. They do not do night work, stocking the shelves. I started using my local Aldi at Sandal in Wakefield, back in 2004, Aldi had a policy of leaving checkouts empty until at least two people were there to be served and often three or four. It was all in the effort to keep down costs and raise efficiency, and efficiency pays wages, and as if to prove that Aldi wages were good, and the products were inexpensive.
The effect on UK supermarket shopping was electric, these foreign discounters soon started to gain market share. For the first eight to ten years they had been a nuisance, now as the new millennium dawned they were starting to gain traction. Also one leading UK supermarket chain Safeway was struggling. Safeway UK went into liquidation, many of the stores were taken by Morrison’s who were primarily a northern concern, this gave them a larger southern foothold. Then came the crash of 2008, the UK big four, Tesco, Sainsbury’s, Asda (WalMart) & Morrison’s, now all looked vulnerable UK discount retailing was in crisis.
they could not cut costs to meet Aldi
The European discounters were in the ascendancy, the Big four were scrambling around looking at ways to compete. In fact the first casualty was one of the discounters, Netto, which dropped out of the market, their model of brand names at low prices had failed. Lidl and Aldi with home brand goods went from strength to strength. Tesco, Asda and Sainsbury’s had been opening ever larger stores, more like hypermarkets, they affected bottom line costs. A large Supermarket open 24 hours has to be lit, heated and staffed, 24 hours, they could not cut costs to meet Aldi and Lidl’s cut throat prices.
Shoppers were looking at ways to cut their weekly bills, and one thing they did was reduce how much they bought in their ‘Big Shop’, bulk buying was out. Subtle changes were happening with UK shopping habits, buying fresh and often was back in and UK discount retailers were looking to cash in.
Tesco were first out of the blocks by buying up chains of filling stations with the potential to stock the necessities like milk and bread, but also very high margin goods, like flowers. So the bloke dashing in on the way home, tops up with fuel, buys his milk and picks up a bunch of flowers for his loved one. Fuel is wafer thin on margin, but that bunch of flowers suddenly made a 1% to 3% gross profit on the fuel, into a 15% net profit for the shop. Result. Tesco put on hold all its large supermarket building programme, likewise so did all the others.
Oddly at the same time, where possible, Aldi was making all their older stores 50% larger, still very small compared to the average ‘Big Four’ supermarket stores
And ten years later there is another change going on, quietly through all this the UK discount retailer scene has been changing again. When all the large chains were grappling with falling sales, there were a number of shops springing up on retail park locations, they were housed in sheds, they had lots of parking, but were also surrounded by other specialist retailers, like Pets at Home, Maplin, or the specialist furniture stores.
B & M is listed in the FTSE 250
So how many of you have shopped at Range, B & M, or Home Bargains, these are the names now coming to the fore, and Aldi and Lidl need to beware, they are as cheap and often even cheaper. I was in Home Bargains the other day, deliberately because there were five or six items I wanted, I had been to a specialist shop nearby, so called in. Kitchen roll less than half the price of Aldi, shampoo that knocked Lidl prices into a cocked hat. While I was there, I checked out the NEW grocery section, they need to improve, but I suspect they will. B & M is listed in the FTSE 250, and its Chairman (he steps down on 31st December 2017) is none other than Terry Leahy former head of Tesco. B & M have a large presence in Germany, and their latest shops are top notch, groceries are given prominence when entering the stores, but it is the sales of other items, that make their profits, UK discount retailers are back. Home Bargains have a philosophy of ‘Luxury shopping experience, with a budget price tag’ it is working.
All in all the UK discount retailers are more competitive than ever before. For those thinking #Brexit is going to be a disaster, it is overseas who are going to have to look to their laurels, UK shopping is on the move, and UK plc is too small to contain it. For all those overseas, you have been warned.