The discount retail industry may seem a niche sector, but in fact it has seen considerable growth in recent years, especially since the onset of the global financial crisis around 2008. The company we’re dealing with in the pre-seen is BES, a discount retailer selling a broad range of products at the Single Price Point (SPP) of $E1. SPP retailers in the real world industry make up just a subset of the general discount retail sector, but even this relatively small segment has seen growth in recent years. In this overview of the industry, we will look at some real-world trends and developments in order to shed some light on the context within which BES is working.
Macro-view: Some growth figures from recent years
Let’s look at how the discount sector compares with other segments within the general retail industry in recent years. The table below breaks the retail industry down into seven categories. As you can see, the discount retail sector has seen healthy growth in the years from 2008 through to 2013, with the final column displaying a growth projection from research group Statista. Based on these projections, we can see how discount retail stacks up against the other areas. According to these data, discount retail sees a growth percentage over 2008 of 75%. The other two major growth segments have been convenience/forecourt stores and online retail.
However, as is signalled in the pre-seen, the relevance of online retail to the discount sector is dubious. There seems little incentive for a discounter to establish online delivery services, for instance, as the cost of delivery relative to the price of the goods is so high. As such, online retail and its growth may not constitute much of a threat to discount retail, as they cater to different customer segments. What is certain is that discount retail is one of the healthiest sectors within the overall retail industry in terms of growth.
One of the possible factors accounting for this growth is the fact that consumers’ habits have changed fundamentally since the financial crisis. According to analyses by the Guardian and the BBC, consumers from traditionally middle income brackets were compelled to seek out more and more bargains in the crisis years as real income shrank and disposable money was squeezed. This in turn led to a kind of “destigmatisation” effect, where bargain hunting became normalised, which encouraged more people from higher income brackets to seek out such discounts. Ever since, those habits have become entrenched and so we now have a customer base in the discount retail sector not available prior to the crisis.
Real World Case: Poundland
There is one very obvious real-world analogue of BES, and that is UK’s Poundland. Poundland closely tracks BES in many aspects. To name just a few: like BES, Poundland was founded in the 1990s; has an SPP of £1 sterling; and underwent a recent Initial Public Offering in 2014. Because of the many similarities, it seems prudent to look closely at Poundland as a way of gaining some insight into BES’s operations, and possible future strategies for increasing sales and profit margins.
Poundland’s success tracked the general growth of the discount sector. Its sales and profits accelerated during and in the aftermath of the crisis years. It saw an annual profit growth of 46% a year from £4.1m in 2006 to £12.7m in 2009. Poundland has achieved this growth through a number of different avenues. We will consider each in the full industry analysis. For now, we’ll have a quick look at just one: non-organic growth through acquisition.
Like BES, Poundland is no stranger to buying up rival businesses and store spaces. Its biggest acquisition came in 2015 with the takeover of closest rival, 99p Stores. However, despite the apparent boon of eliminating a rival, the takeover has proven problematic. Because the takeover gave Poundland a considerable market share, the Competition and Markets Authority in the UK was alerted and Poundland was subjected to a lengthy and unwelcome investigation. This investigation resulted in substantial delays in refurbishing and opening the existing 99p Stores under the new branding of Poundland, and ended up seriously damaging Poundland’s profits for that year…
For the Full Industry Analysis…
The above is just a portion from our Complete Industry Analysis, which comprises over 1 hour of HD video analysis and Powerpoint document with suggested further readings for the industry. You can access the Complete Industry Analysis here, as part of our Smarter Study Pack for the May 2017 Management Case Study Exam. Try our Smarter Study Pack and find out just why our students give us an average of 4.5 out of 5 on overall satisfaction with our services!
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