Will Covid-19 Finally Force Discount Retailers To Embrace Online Selling?

The global pandemic has accelerated many trends in retail. Firstly, there is the move to online shopping, which grew during lockdown to represent nearly a third of all retail sales. The second is the continued growth of discount retailers.

Until now, discount stores have mostly lagged behind in terms of online selling due to their razor-thin profit margins, but will the pandemic finally force them to expand in to ecommerce?

The growth of the 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 cut-price household essentials, saw sales growth of 20% during lockdown. In the clothing sector, Primark saw sales higher than expected once their physical stores reopened, with queues outside their stores being a common sight.

Retail commentator Steve Dennis has referred to this trend previously the “great bifurcation” of retail – where consumers either move towards premium, higher quality goods or towards the discount-end of the retail spectrum, leaving retailers that sit in the middle highly exposed. Dennis has also noted how Covid-19 has simply accelerated this trend that was already in evidence.

Online selling and low margins don’t mix well

Most discount retailers are operating on razor-thin profit margins, and over the years, the costs of doing business online have been rising.

Ecommerce has become more expensive both in terms of the cost of acquiring new customers, but also because of customer expectations around shipping and returns. The cost of returns has been estimated at more than £60 billion in the UK alone, and can account for up to 10% of revenue.

With this in mind, it is logical that many discount retailers have remained heavily focused on their bricks and mortar shops. B&M, for example, allow customers to browse their product catalogue online but direct them to their nearest store for purchase.

Will Covid-19 force a move online?

Despite the clear reasoning behind the focus on bricks and mortar stores, lockdown will have delivered a hard blow to those retailers without an online presence.

Primark, despite seeing sales rebound quickly after stores were able to open back up, estimated that store closures cost them £800 million due to the fact that they have no transactional website. The company remains adament that they will not make the move online, but will the threat of further lockdowns force their hand?

In the grocery section, Aldi announced last week that they would begin trials of click and collect in fifteen stores. This will mark the first time that Aldi customers have been able to buy online, and will no doubt be a welcome development for loyal customers who want Aldi products without the time spent in store.

While click and collect is one step removed from a fully-fledged ecommerce proposition, it shows a clear shift to online selling and a concession to changing customer habits.

What remains to be seen is how many of the other discount brands follow suit.