Discount store sales rocket as shoppers feel the pinch

Traditional supermarkets aim to fight back


pretty woman with a cart...

Sales at discount stores are rocketing, according to Barclaycard, which says we're spending nearly 30 percent more there than this time last year.

By examining debit and credit card transactions for April, the company has found that while overall spending is up 3.7 percent on last year, the value of individual transactions has fallen by five percent. In other words, we're shopping more, but spending less each time we do.

During April, spending at discount stores - from pound shops to discount supermarkets - was 29.8 percent higher than last year.

"Though many economic indicators continue to paint a positive picture and the talk is of a recovering economy, the improvements are yet to trickle down and positively impact on household budgets," says Val Soranno Keating, CEO of Barclaycard.

"While the growth in spending in April is encouraging, this is as likely to reflect the better weather and the long Easter weekend as any improvement in the economy."

Some sectors, says Barclaycard, saw a respectable increase in sales last month: clothing spend grew 13.8 percent, supermarket spending 8.9 percent and department stores 4.1 percent. And there's been a big rise in spending at DIY stores and garden centres - 11.9 percent and 20.2 percent respectively - which Barclaycard puts down to the housing boom.

However, spending on petrol fell by 5.8 percent, while spending in furniture stores was down 2.2 percent.

"Lack of wage growth has acted as a brake on consumer spending for a long time and, though there are signs that it could finally be improving, until we see several months of real wage increases, consumers will likely remain cautious with their spending, with growth remaining uneven in the coming months," says Sorrano Keating.

A recent report from industry analyst Planet Retail revealed that discount retailers are increasing in number and steadily attracting more middle-class shoppers. It predicts that discounters will achieve a compound annual growth rate of 10.5 percent over the next five years, with Aldi and Lidl adding as much as £5.9 billion in sales.

"The enduring success of the discounters owes much to three key dynamics – physical expansion, increasing average basket size and widening customer base. A virtuous circle of reaching and retaining new customers, and enticing existing customers to spend more," says senior retail analyst Stephen Springham.

"With both Aldi and Lidl earmarking substantial capital for investment in the UK, physical expansion will accelerate rather than recede – each will open 25-40 news stores per annum over the next five years."

Traditional supermarkets are responding by reviewing their strategies, switching from one-off promotions to lower prices longer-term. "For all their stellar growth, the discounters are not infallible, nor are they immune from downward pricing pressure from the larger multiples," says Springham.

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