Discounters. All Change. As the UK discount sector continues to evolve, we analyse what lies in store next, and what it means for mainstream retailers.

www.visualthinking.co.ukSAVE @shoptactics 1 www.visualthinking.co.uk Follow us @shoptactics Contents

Introduction 03 Low cost uprising 05 Value perception 07 Cheap. But cheerful? 08 All grown up 10 Affordable. Desirable. 14

Bags of confidence 15 : Australia Back to basics 17 Real deal 19 Get the sell right 20 Hints and tips 20 Summary 21 Positive change 22

Pep&Co: UK

Primark: Germany

www.visualthinking.co.uk @shoptactics 02 Introduction

Should Great Britain be rebranded ‘Bargain Britain’? Once famously labelled a nation of shopkeepers, today our high streets are awash with discounters. From grocery, to fashion and sportswear, homewares and general merchandise, almost every sector has seen a rise in low cost, low frills retailers. Shoppers have always loved a bargain, although the rise of the discounter really started to make sense as the last recession took hold in the UK – their cheap and cheerful formula resonating with cash-strapped shoppers. Despite an economic upturn, this new breed of shopper – the ‘hunter-saver’ – is still very much alive. If anything, the nation’s love of discounter retailers has only intensified in recent years. Almost every sector has There is change on the horizon though. As the market starts to mature, discount retailers are seen a rise in low cost, growing ever more sophisticated. The race to low frills retailers. gain critical mass through large-scale store openings and a focus on cheap prices is giving way to messages around quality and provenance of product, as well as more ‘grown up’ instore environments and merchandising techniques, as some discounters begin to realise that less may also indeed be more when it comes to delivering engaging experiences. If they get it right, shoppers will continue to vote – with their feet and their wallets. It all adds up to the fact that mainstream retailers should not only be worried, but also start to reinvest in their stores, people and processes now, before it’s too late.

Karl McKeever Founder and Managing Director

www.visualthinking.co.uk @shoptactics 03 As the UK discount market begins to mature, retailers are increasingly focused on the pounds, not the pennies. Cheap and cheerful is being replaced by messages of quality and value. So what will discounters do next? More importantly, with profits already being squeezed as competition intensifies, what are the likely implications for mainstream retailers?

www.visualthinking.co.uk /@shoptactics 04 Low cost uprising

Selling products at rock-bottom prices is not a new Feeling the pinch phenomenon; discount stores have existed for as long as Whilst the discounters’ star continues to rise, like-for-like sales the high street. Primark opened its first UK store in 1973. By across the big chains continue to fall and so do prices. 1978 already had 28 stores to its name. Aldi has now been operating in the UK for 25 years. In grocery, the likes of , and have all lost market share, while the discounters continue to grow theirs. Aldi While the UK recession of the early 1990s came too soon has more than doubled its market share since 2006. has for the German-owned retailer, there is no doubt that the done the same, leaving both of the German discounters with a recession of 2008 was a major catalyst for growth in the healthy 10% market share between them – only 5.4% behind discount sector, as shoppers tightened their belts and were grocery giant Asda. forced to be more conscious about their spending habits. It begs the question of whether the likes of Aldi and Lidl are Discounters not only seized the opportunity, but several already more mainstream than we think. Interestingly, research have set their sights on extending their appeal beyond those suggests that many shoppers no longer view them as operating in on low incomes, and have now managed to successfully the same space as discounters such as Poundland and B&M capture the hearts of Britain’s middle class.

www.visualthinking.co.uk @shoptactics 05 80%

75%

64% 49%

52%

Which of these stores would you consider to be a Discounter? Poundland Aldi Lidl

Number of new stores opened in 2015 65 Aldi 50 Pep&Co Aldi revenue has doubled since 2006

www.visualthinking.co.uk @shoptactics 06 Value perception

No longer are we the loyal shoppers we were a decade ago. A new shopper has emerged in today’s post-recessionary market. We have quelled our impulsivity and now take an even more considered approach to our spending – one that’s more savvy and more value-orientated. Research by shopper insight agency Shoppercentric suggests that 51% of us now split our grocery shop across several stores in order to access the best promotions, juggling retailers accordingly. On average, UK shoppers now visit four different retailers a month.

31% of shoppers think shopping in discounters is more fun than in regular . Source: Shoppercentric

Aldi: Australia

Discounting loyalty Increasingly transient shoppers are switching from established retailer preferences to discounters, bringing with them expectations of minimum standards instore – in terms of environment, product presentation and people. In fact, a large percentage of customers (57%) who shop in discounters are those who don’t need to: ABC1 shoppers. Those who class themselves as a loyal or Sainsbury’s shopper, are just as likely to take pride in ‘bagging a bargain’ at a discount retailer as those that would be classed as a core Aldi or Lidl shopper. Traditional stereotypes and rules no longer apply. According to Poundland, as far back as 2012, more than one in ten of its shoppers were already coming from the top social classes, with many shops in Netto: UK affluent areas doing well www.visualthinking.co.uk @shoptactics 07 Cheap. But cheerful?

Cramped instore environments, awkward layouts and an unsophisticated approach to product merchandising all combine to compromise ease of shop within many discount retailers. Shoppers will eventually become fatigued by the intensity and relentlessness of high volume, stack-it-high and sell-it-cheap retail experiences. Fact. It’s why the retail environment is becoming increasingly important, as an engaging instore experience and basic good shopkeeping principles become key differentiators. Going forward, winning with the shopper instore will be about much more than just low pricing.

easyFoodstore: UK

Bargain basement Is easyFoodstore a sign that retailing has hit rock bottom? It’s a new low in instore standards, rather than low prices, that catches the eye. The result surely has the potential to damage, rather than add value to the famous Easy – Read our store review undermining customer perception of its products representing of easyFoodstore, here ‘good value’

www.visualthinking.co.uk @shoptactics 08 Discount no longer means cheap. Today’s shoppers see discounters as giving real value.

Shoppercentric

www.visualthinking.co.uk @shoptactics 09 All grown up

The recent introduction of new discount fascia GHM! into Race to the bottom the market, so quickly after the launch of sister brand The endless price cuts that supermarkets have been caught up Pep&Co last year, shows there is clearly space for retailers in over the last few years have done no-one any favours. For targeting shoppers on a budget. But while discounters the majority of discounters, a maturing market will mean that may currently be enjoying a ‘Golden Age’, they too will they too will have to look beyond price, and begin moving their face the need for change in order to remain relevant as up the ‘value-added’ ladder. both shopper needs and the retail landscape continue to evolve. That will mean providing retail experiences that inspire and delight to keep customers engaged and shopping. To do that, It draws attention to the challenge of how retailers grow they will need to deliver the brand instore in a way that is more and expand their customer base as time goes on and mature and multi-dimensional. Seasonality, trends, elevating competition increases. Purely based on inflationary the product offer and customer service will have to play pressures alone, pound shops will only be able to keep more prominent roles, all of which can be achieved with an selling products for £1 or less for so long, as margins are enhanced instore experience gradually eroded. When that day comes, they will have to either increase prices or reduce pack sizes – potentially compromising the perception that shoppers have of the value they get from shopping in such stores. Read our review of the Pep&Co launch on our blog, here

www.visualthinking.co.uk @shoptactics 10 All grown up

Fortunes and fashion When Tesco launched its first ever standalone F&F stores, the instore experience that greeted shoppers was comparable to many of the established high street competitors, and gave no indication of the brand’s roots in grocery retailing. There is no doubt that Tesco got the look right. It serves as clear proof, if it were needed, that if they choose to, and with the right knowledge, capability and support, supermarkets can present a highly credible apparel offer. Like F&F, Asda has also trialled standalone clothing shops for its George brand in the past. The retailer closed the 11-store chain in 2008, just as the global economic crisis hit, because it could not deliver sufficient returns to cover the high rents required for prime city centre locations. Perhaps a mix of better timing and following a strategy similar to Pep&Co – The sky’s the limit choosing store locations in small to mid-sized towns – could have produced very different results As budget airline easyJet matured, its mother business easyGroup began systematically expanding its offering to include additional services beyond cheap flights. The decision to diversify into new markets, with the launch of brand extensions such as easyCar and easyHotel has enabled easyGroup to support continued growth. It’s possibly a sign of things to come for many discounter retailers too, as they seek to expand their ranges and service offering beyond their core categories. Could we soon see Aldi Financial Services, or a Pepkor-owned beauty retailer on our high streets? www.visualthinking.co.uk @shoptactics 11 Aldi: Project Fresh Aldi has already shown signs that it has aspirations to elevate its instore experience with a more contemporary look. In Australia, the retailers ‘Pro- ject Fresh’ concept has so far rolled out to eight trial stores. Featuring wood panelling, modern upright freezers and new graphics to complement instore bakeries, fresher produce and well-known brands, Aldi has promised that the new look won’t change the price of their budget products.

Lidl: Store of the Future A brand new store concept, Lidl’s ‘Store of the Future’ launched with a goal to acquire the more premium shopper from competitors such as M&S and Waitrose. The store feels ever-so-slightly more ‘premium’, featuring a more clearly defined store space, self-service tills and better constructed payment areas. In truth, it’s more in line with what you would expect from one of the big grocery retailers rather than a ‘Store of the Future’, but in many ways that’s the point – and a big step forward.

Netto: Lincoln REWE CITY: Cologne Instore, a strong Scandinavian ‘brand essence’ is clearly evident. But Providing a truly engaging instore experience, this store stands as a the use of crates as dump bins is questionable within a grocery retail great example of how retail concepts can add value to the discount context. It works for tea lights, bulbs and homeware accessories – shopping experience, beyond just offering shoppers cheap groceries. less so for cabbages and super noodles. However, new-look stores do demonstrate many of the principles applied within joint venture partner Sainsbury’s, including a well-defined three-tier ‘Good, Better, Best’ offer, while its ‘Buy me, try me’ Multibuy promotions feel Read our store review innovative and genuinely engaging. of REWE CITY, Cologne, here

www.visualthinking.co.uk @shoptactics 12 www.visualthinking.co.uk @shoptactics 13 Affordable. Desirable.

While cheap chic shows no signs of disappearing, selling a In many ways, that’s why the launch of Pep&Co and GHM! credible apparel story alongside grocery items is not easy. into the market makes things really interesting. It may be more Grocery retailers have continued to grow their slice of the discount general merchandise store rather than , apparel market in recent years. Today, Sainsbury’s Tu brand but GHM! is bringing grocery items and a value apparel range has forced its way into the top 10 in terms of the value of – with a genuine standalone high street presence of its own – clothing sold. But as far as mainstream high street retailers under one roof, for the first time. Yes, selected Co-op stores are concerned, the threat from the grocery-derived value may now feature M&Co concessions, but GHM! and Pep&Co apparel brands such as F&F, Tu and George has remained are part of the same company, with an aligned strategy, marginalised. In reality, while apparel delivers relatively significant investment from its South African owners behind it, high profit margins for supermarkets, investment by Asda, and former Asda boss, Andy Bond, at the helm. Sainsbury’s and Tesco in their clothing business is more With the necessary guidance and support to bed in best focused on filling space in their stores than expanding a practice retail principles and effective tools and development to standalone presence on the high street. enable their people to do the right things, GHM! and Pep&Co In 2014 Lidl took its first step into the world of fashion. Its could be on their way to realising an achievement that the latest denim range – £5.99 jeans – is safe in style, in stark big four grocery retailers have, so far, been largely unable to contrast to the offer from established fashion-forward value manage – translating a value apparel proposition between retailers, such as Primark and H&M, who are able to offer instore concessions and standalone stores, with real scale value variants of trends straight from the catwalk. If Lidl is serious about building a credible apparel brand, then more considered shop-in-shop environments must follow. The strong ‘value-for-money’ appeal of a grocery retailer is not enough to reinforce style credentials, something that both Aldi and Lidl will surely have to overcome if they are to build their own apparel offer. But it does serve as a reminder of the opportunities that exist for discounters, and the possible threat that a greater focus on and investment in apparel by them could signal for some mainstream retailers, Read our store which are already suffering as market share continues to be review of M&Co in Rutland, eroded in a highly competitive sector. here

www.visualthinking.co.uk @shoptactics 14 Bags of confidence

Many discounter stores are still ‘no frills’ environments, featuring harsh strip lighting, stock-it-high VM principles and daunting queues at the tills. However, several discounters are already starting to up their game when it comes to their instore experience and are investing heavily in store refits, developing more sophisticated approaches to category and product merchandising, and attracting talent from mainstream competitors. While things may be moving relatively slowly in the grocery sector, over in apparel Primark’s multi-million pound investment in flagship stores is testament to growing confidence within the sector. However, by contrast, Matalan is an example of a retailer that, in the last few years, has become forgotten and lost under the hype of new and popular discount fashion retailers. Primark: US

Read our store review of Primark, Cologne, here

www.visualthinking.co.uk @shoptactics 15 Who do I most admire? That’s easy – Primark. I admire their relentless focus on their customer… they offer outstanding value. They are a great retail operator in today’s market place.

Mike Ashley Sports Direct

www.visualthinking.co.uk @shoptactics 16 Back to basics

It’s perhaps too early to call whether or not we’ve If experiential is the future of retail, as some industry experts already reached ‘peak discounter’. Discounters are still forecast, this appears to be the one area in which the growing sales. But until now they have been reliant on established hierarchy could differentiate and lead the fight back. new store openings and, just as all mainstream retailers For mainstream retailers, it all adds up to a need for them to go tend to struggle when they have reached a certain size, back to basics, if they are to fend off the threat of discounters discounters are finding organic growth harder to come by. seeking to cannibalise their market share, and maintain That doesn’t mean that mainstream retailers can afford to competitive advantage. rest on their laurels – after all, that’s what cost the likes of In reality, that means making the customer journey more Woolworths and, most recently, BHS so dearly in the first place. efficient and engaging, getting better at selling more stock, and So how can the mainstream fight back? The traditional improving product presentation. Put simply, it’s about making industry approach of launching deep price-cutting more of the assets they already have access to – being more campaigns is clearly the wrong option when trying to focused, more effective and more efficient instore win market share back from discounter chains that pride themselves on their ability to offer rock-bottom prices.

Read our column on the demise of BHS, here

www.visualthinking.co.uk @shoptactics 17 Back to basics

It’s essential to remember that being competitive is not just about slashing prices, and it should certainly not involve slashing standards. Success means asking questions Concentrated efforts should be made on the best sales-driving activities, improving standout and routinely deploying the most like, ‘is the customer journey effective visual merchandising methods and working practices. cohesive’; ‘is the allocation and use Instore strategy should be carefully considered, with both retail and merchandising standards consistently applied. Store of space being optimised’; ‘does teams should be fully engaged and well-trained, and have the promotion make sense’; and a ruthless commitment to both attention to detail and basic housekeeping in order to deliver a strong and cohesive brand ‘can displays maintain day sales experience instore. whilst maintaining their visual Do this, and mainstream retailers can fundamentally improve presentation’. As the saying goes – the selling efficiency of stores, without the need to invest in new equipment, increase headcount or place any additional work smarter, not harder. burden on existing staff

Read our column on retail’s silver bullet, here

www.visualthinking.co.uk @shoptactics 18 Real deal

Case study

As part of its comprehensive clothing re- merchandising programme, Australian retailer Big W wanted to revitalise and harmonise product presentation across its 184 stores. Together, we created Brilliant Basics: Essential Store Standards – a set of policies designed to boost brand performance instore. Initially launched through a series of workshops to four area stores. Brilliant Basics quickly went on to become an integral part of the company’s everyday processes. As well as introducing the Brilliant Basics concept to Big W associates with a series of immersive engagement sessions, Visual Thinking developed a Brilliant Basics toolkit featuring an Essential Standards manual, managers’ briefing kit, six-week implementation planner, DVD and employee engagement comms. We also developed a digital interactive tool to share scores and feedback from retail standards benchmarking instantly, across the entire business.

Case study

Visual Thinking was tasked to help Sainsbury’s Tu Clothing brand define its visual merchandising policy to create a consistent and credible fashion environment instore. Along with this, a need to provide a bespoke training programme for regional coaches and store clothing managers, to support the rollout of the project, was highlighted at an early stage. Once initial findings and recommendations were approved, our team conducted a series of model store set-ups to trial improved VM display techniques, before producing the clear VM Principles policy for the brand. Working closely with Sainsbury’s L&D department, a bespoke training programme was developed to support policy rollout – providing training to 650 Sainsbury’s colleagues

Read more about our work for Tu Clothing and Big W, here

www.visualthinking.co.uk @shoptactics 19 Get the sell right

With discounters keen to evolve beyond a value message, some may consider replacing a ‘pile-it-high, sell-it-in-volume’ proposition with a ‘less-stock-for-a-better-shop’ strategy – improving product quality and the shopping experience, and potentially investing huge sums of capital expenditure in new store concepts.

But there is a need for caution. Success requires continuous, rather than sudden, change. It’s vital that both the brand and its stores continue to reflect what shoppers perceive as a discount or mainstream proposition. Pitch too high or too low, or take a big step too fast, and shoppers will be unlikely to buy into your vision of the future.

Hints and tips

For discounters For mainstream retailers 1. Fill a genuine gap in the mind of the shopper. 1. Focus on being better than the competition. 2. Remember that product, innovation, and the store 2. Execute and maintain the very best VM and retail experience are all important for gaining share. standards – in every store, every day. 3. Identify ways to take the shopping experience 3. Improve the store experience to make it ‘worth’ from better to best. the price of products. 4. Deliver a store environment that shifts 4. Bring a renewed sense of purpose to the perspectives away from ‘low price, low quality’. retail space. 5. Focus on defining and embedding best 5. Give store teams the knowledge and skills practice VM principles and store standards required to refocus and redouble their efforts. that will support future success instore.

www.visualthinking.co.uk @shoptactics 20 Summary

Even for discount retailers, lower prices are rarely a differentiator anymore. The truth is, when it comes to competing on price, there is no end, and nobody wins. Someone will always be cheaper, be it online or on the high street.

Put simply, the discounters have succeeded in growing their market share because they gave customers what they wanted. It was a model that served so many in the mainstream so well, for so long during the decades in which they built their own dominant position. Now they have to go back to basics and offer their customers what they need if they want to convince them to open their purses and start spending in their stores again. Success means not only ensuring that shoppers end up with a few more pence in their pocket, but that, ultimately, they leave the store feeling rewarded by their shopping experience.

www.visualthinking.co.uk @shoptactics 21 Positive change

Specialists in retail performance improvement, we make change possible instore. Our insight and solutions help define and deliver best practice to make a tangible difference to commercial effectiveness.

To find out more contact: Karl McKeever [email protected] +44 (0) 1788 543 331

www.visualthinking.co.uk @shoptactics

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