Will Covid-19 finally force discount retailers to embrace online selling?

The global pandemic has accelerated many trends in retail. First, there is the shift to online shopping, which increased during the lockdown to account for almost a third of all retail sales. The second is the continued growth of discount retailers.

So far, discount stores have mostly fallen behind in terms of selling online due to their very slim profit margins, but will the pandemic finally force them to expand into e-commerce?

The growth of discount chains

With many consumers facing reduced household incomes and continued economic uncertainty, it’s no surprise that discount or value retailers have fared better than most during the pandemic.

For example, discount chain B&M, which sells discounted household items, saw its sales increase by 20% during the lockdown. In the apparel business, Primark saw higher-than-expected sales once its physical stores reopened, with queues outside their stores commonplace.

Retail commentator Steve Dennis previously touched on this trend on “big bifurcation” retail – where consumers move either to higher-end and better-quality products or to the lower end of the retail spectrum, leaving retailers in the middle very exposed. Dennis also noted how Covid-19 simply accelerated this trend that was already in evidence.

Selling online and low margins don’t mix

Most discount retailers operate with very slim profit margins, and over the years the costs of doing business online have increased.

E-commerce has become more expensive both in terms of the cost of acquiring new customers, but also because of customer expectations for shipping and returns. The cost of returns has been estimated at over £ 60bn in the UK alone and can account for up to 10% of turnover.

With that in mind, it makes sense that many discount retailers have remained heavily focused on their physical stores. B&M, for example, allows customers to browse their product catalog online but directs them to their nearest store for purchase.

Will the Covid-19 force a passage online?

Despite the clear rationale behind the focus on brick and mortar stores, the lockdown will have dealt a heavy blow to those retailers without an online presence.

Primark, despite the rapid rebound in sales after stores reopened, estimated that store closings cost them £ 800million due to the fact that they did not have a transactional website. The company remains adamant that it won’t go online, but will the threat of further lockdowns force their hand?

In the grocery section, Aldi announced last week that they would begin click and collect trials in around 15 stores. This will be the first time that Aldi customers will be able to shop online, and it will no doubt be a welcome development for loyal customers who want Aldi products without spending time in the store.

While click and collect is a far cry from a full-fledged e-commerce proposition, it shows a clear shift towards selling online and a concession to changing customer habits.

What remains to be seen is how many other discount brands are following suit.

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