While the retail sector at large struggles as consumers keep cash and credit card in pocket, one retail segment is seeing an upside to the downturn.
Discount and value stores are experiencing a resurgence and older shopping centers with less fashionable and contemporary tenants are benefiting from courageous expansion plans.
This raises a question. While market conditions suit these plans, what happens when the market picks up?
Variety, the spice of life
The retailer that best opitimises this trend is “variety” retailer Wilkinson who have announced plans to open 200 stores – they currently total 295 – and triple sales by 2012.
Current market conditions and the decline of Woolworths provide the retailer with the perfect opportunity to improve market share and establish themselves as a major retail force. New neighbourhood stores are being trialed (see below) and ad spend is set to accelerate in 2009 in an attempt to build the brand and communicate their position as “The home for family value”.
Wilkinson 'neighbourhood' Nottingham
Additional investment in Wilkinson Plus, their internet and catalogue business is also planned.
Discount turns high value
Poundland – stockist of 3000 products all sold at £1 each – plan to grow from 178 stores to potentially 600. Looking to benefit from retailers entering administration, they currently search for locations across shopping centres and high streets.
This buoyancy at the bottom end of the market is having a positive affect on older, dated shopping centres that aren’t positioned for affluent consumers. Commenting in the FT (14/4/09), Bill Oliver, chief executive of St Modwen said, “Our portfolio is mostly secondary quality but it is letting up incredible well”. The company that had four stores empty after the closure of Woolworths have already relet three with two going to Wilkinson and Poundland.
Elephant and Castle – owned by St Modwen and once planned for demolition – is also seeing improved rental prices as discount retailers battle to find space. Nick Symons of Savills comments, “There are some secondary retail schemes that have capitalised on the current climate by targeting discount/value retailers such as Primark, TK Maxx and Wilkinson.” Symons cites Mall in Southampton, Pentagon Centre in Chatham as winners.
Bargain hunting
Value Retail, owners of designer discount outlet centres including Bicester Village claim to be trading ahead of budget with like-for-like sales up 10% on last year. McArthurGlen’s designer outlets are also bucking the general retail trend, with sales in January up 10% compared to last year.
Discounting in an upturn
While current conditions are favorable, the market will bounce back. This presents discount and value retailers with a dilemma, while there is a short term opportunity to grow market share and sales they need to prepare to remain relevant when consumer confidence and “aspiration” returns.
Retailers occupying this space could do worse than look at Primark, a low cost retailer with the ability to make customers feel that they are buying contemporary high spend fashion, not cheap and cheerful items of clothing. Latest financial results illustrate the effectiveness of the approach, sales at Primark rose 18% to £1.07 billion in the 24 weeks to 28th February.
Wilkinson also set an example by investing in their brand and outlets. Their peers and the shopping centres that host them need to follow suit. If they don’t they risk loosing customers as quickly as they attracted them.
CORDthinking 