Despite a drop in inflation to 2.2% in April, purchasing power remains a major concern for the French, favoring the success of discount stores. Brands such as Normal or Action have experienced rapid growth, but they face significant challenges, which could slow their growth and favor the development and innovation of e-commerce.
Last April, inflation measured by theINSEE over the last twelve months was 2,2 %. A figure that has been falling steadily for several months, which could be synonymous with a lasting stabilization of prices. However, purchasing power remains the number 1 concern of the French, as shown by an Ifop-Fiducial poll for LCI, according to which it was in their eyes the most important issue of the past European elections. In this context, the conditions seem to be right for the success of discount observed in recent years to continue over time. This model will however have to face significant regulatory and ethical limits that could well reshuffle the cards in terms of low-cost consumption and support the development of e-commerce specialists.
Growth driven by new models
Over the past two years, the hard discount signs and clearance sales have grown dramatically. According to a study conducted by BPCD Digital & Payments, the number of cards recording at least one monthly transaction in a discount store increased by 20% between the first quarter of 2022 and the first quarter of 2023. A success that should continue at least until 2025 according to forecasts by Xerfi experts who anticipate growth in the sector 6,5 %. While this craze for discount is of course directly linked to the extremely high inflation that Europe has experienced, it is also fueled by the development of new models and in particular soft discount embodied by brands such as PrimarkNormal, Primaprix, Stokomani and Action. So many emerging chains that are enjoying success thanks to an intermediate positioning and a massive presence on the outskirts of medium-sized towns.
Land pressure that will weigh on the entire sector
The success of these brands is based on their ability to quickly open many points of sale. In just 3 years, the Danish brand Normal has opened 108 stores throughout the country and has seen its turnover increase from 39 in 2020 to 209 million euros in 2023, while the Dutch brand Action opened 74 stores in 2022 and 303 in 2023! This low-cost mass distribution model is therefore largely dependent on the availability of a cheap land. However, the Climate & Resilience Law adopted in July 2021 by the National Assembly provides that the net rate of soil artificialization be halved every decade, for achieve neutrality by 2050. A goal of Zero Net Artificialization that will soon be specified in a Law currently being drafted and relating to the methods of implementing a principle of land sobriety. The slowdown in the growth of commercial areas that will necessarily result from this, as well as the mechanical increase in the price of land, will thus become major economic challenges that will weigh on the ability of discount brands to offer low prices.
CSR imperatives on a European scale
Another major risk for discount players, the CSRD directive adopted in 2022 by the European Parliament is gradually coming into force since 1is January 2024 and will soon apply to all companies with more than 250 employees and a turnover of more than 50 million euros, as well as to all SMEs listed on the stock exchange. However, this directive requires that new, particularly demanding standards for traceability and reporting of ESG data (Environmental, Social and Governance). These companies will have to provide evidence, with figures to support their consideration of environmental factors (mitigation and adaptation to climate change, biodiversity, use of resources) and their ability to ensure the traceability of each of the components of the products they sell. These are all aspects that pose a particular problem for brands implementing drastic cost reduction practices.
After a boom period fueled by inflation and the development of mixed models, it is thus likely that these two regulatory obstacles will considerably slow down the growth of discount players and generate opportunities for their competitors. If their ability to offer lower prices than the competition were to be called into question, they could indeed face a resurgence of e-commerce in many niches and in particular an increased use of comparison sites allowing them to reconcile moderate prices and quality.
Source: www.ecommercemag.fr
