Is heavy discount the new deal of retail?

According to the @FT, there is plenty of evidence suggesting that consumers are demanding margin-shredding discounts before they even consider opening their wallets and indeed, corroboration is plenty. Just as an example, it is now an established fact that #discountedRetail – as in outlet retail – is far surpassing the gloomy performances of full-price retail: the outlet market is the second most performing segment after online retailing.

But the @FT looked at evidence is a different and fascinating way by testing the resilience of British consumer through their appetite for posh food around Christmas. And the conclusion is that more consumers shifted to mid-price ranges around Christmas, which supports the evidence they were more cautious about their spending this year. Similar evidence was found in France, with discount and hard discount supermarkets attracting more customers than their mainstream counterparts over the Christmas period. Another proof that consumers tend to rationalise their spending, most likely based on the perception that their purchasing power is shrinking.

If evidence that consumers are demanding discounts are mounting, the question remains. To which point is this behaviour sustainable for retailers? Last month and quite surprisingly, ASOS made a profit warning after heavy discounting halved its operating margin, cutting its share price down almost 40 per cent. And if competition recently demonstrated its ability to maintain revenue growth while offering relatively cheap products to customers, a whole set of questions persists: will it last and can retailers afford it in the long run?

Noemie Mourot

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