Channel shift accelerates into discount sector

The news that Poundland is running an e-commerce pilot as part of a major transformation programme is no surprise. The acceleration of digital channel adoption as a result of Covid-19 means it is likely that more and more discounters will run similar trials to test the customer appetite and economics of the channel. It has been done before of course, Primark as an obvious example and selected products at Aldi. Previously, it has been tough to make it pay back but this time it could be different.

While it is impossible to know exactly what will happen post-crisis, a couple of things are highly likely...

1. How people shop across channels will change forever.  The combination of FOGS (Fear Of Going Shopping) which is likely to afflict many vulnerable consumers for some time plus the inconvenience of masks and queues will continue to drive e-commerce growth. Much of this will be sticky as consumers that have not shopped online before do now and it is habit-forming.

2. The impending recession will make discount prices even more attractive. Discretionary cash will be tight and bargain hunting will increase. If discounters can combine the price points and convenience/safety of online shopping, this will be a clear winner.

The economics are challenging though. The cost of picking, packing and delivery will wipe out most discounters' margin on all but the largest of baskets. New business models will need to emerge to incentivise customers to buy higher margin products or pay for the cost of convenience. Careful consideration of the total customer lifetime value achieved by retaining the loyalty of a customer across multiple channels will need to be worked through. It won't be easy but is likely inevitable that discounters will be online. Watch out for more 'muddle in the middle' as a result.