In the U.S., consumers with an eye for a bargain are keeping the discount shopping sector buoyant.
Yet as its strong growth continues to attract attention from overseas discounters, not to mention encourage expansion among existing discount brands, it’s creating a cut-throat retail environment.
In recent times, European discounters such as grocery chains Aldi and Lidl and fast fashion retailers H&M and Primark have been building a rapid presence in the sector, even as traditional bricks-and-mortar stores feel the pressure from the continuing rise of online retailers.
“European discounters such as Aldi are making a big push in the U.S., which is having an especially large impact in the highly competitive value grocery sector,” says James Cook, Americas Director of Retail Research at JLL. “Today’s consumers want good quality but they also want good value – and retailers who can best provide that will take market share from their competitors.”
Searching out a good deal
The value retail sector comprises discount superstores such as TJ Maxx and Marshalls that sell reduced-priced goods, as well as smaller “dollar stores” such as Dollar Tree and Family Dollar. These may sell household goods and food at a dollar or less, but more commonly, operate like small discount stores with products at a variety of low prices.
Where once value retail stores saw improved sales when consumer spending was down, today, discounters are becoming an everyday alternative for shoppers from all walks of life.
“The value sector is the only sector in physical retail that has room for expansion right now,” Cook says. “Discount and dollar stores are still seeing growth in same-store traffic, and because of that, are opening new stores.”
Aldi intends to open 900 U.S. stores over the next five years to add to its current 1,600 locations in 35 states. Fellow German discounter Lidl opened its first U.S. stores earlier this year, with plans for a total of 100 by next summer.
In fast fashion, H&M continues to expand its large U.S. footprint, while Primark plans to boost its American store space more modestly with the opening of three stores to add to its current five. “Fast fashion in the U.S. is dominated by the foreign chains. H&M is probably the leader with stores in malls all over the country, while Primark has made a big impact in a few major cities,” Cook notes.
Why the discount model works
In the grocery sector, the European discounters are bringing something new to the US market rather than mimicking existing players. Compared to local discount superstores such as Walmart, Aldi and Lidl stores comprise smaller spaces that may fit just five product aisles, carrying a more limited range. The vast majority of packaged products are the chains’ own brands, which tend to offer higher margins, while customers bag their own groceries, reducing labor costs. All of this helps to create more opportunities to slash grocery prices.
“A bargain speaks any language,” Cook says. “That’s one reason that these discount chains have made inroads where chains such as Tesco and Marks and Spencer’s haven’t.”
As consumers flock through the doors of the newer entrants to the US discount market, local discounters, many of them long-established, have had to rethink elements of their strategy.
“There is growing pressure on local retailers to compete on price,” says Cook. “With Aldi and Lidl as well as local discounter Walmart, mainstream, middle-of-the-road grocery chains have to differentiate somehow – whether that is by lowering their prices or in offering interesting prepared food options. Apparel retailers are having to rethink their supply chain in order to be able to act more nimbly with quicker fashion cycles.”
As the discount sector continues to expand, Cook predicts that stores selling a variety of practical goods at affordable prices will see an uptick in business – for example, the Japanese chain Muji and Danish chain Flying Tiger.
“Value brands will continue to find a place in the market, coming from both overseas and within the U.S.,” Cook says. “After all, American shoppers continue to seek out a bargain, with an expectation of value from the retailers they visit.”