Discount retail back in fashion as consumers adjust to austere times

Cut-price supermarkets and value retailers see upswing

Despite a dreadful start to the year for the high street, consumers are spending strongly again in one part of the retail sector, with Britain's discount grocers and Primark, the value fashion chain, welcoming ever more bargain hunters in austerity Britain.

Aldi and Lidl, the discounters known for their cheap prices and limited number of products, posted record market shares yesterday to continue their return to form over recent months, according to the closely followed Kantar World panel data. Meanwhile, Primark, the clothing juggernaut that surprised the market with a slowdown in UK sales earlier this year, said customers had come back with gusto since the end of February.

"It really feels like shoppers have come out for Easter and we havereturned to the sales growth of previous years," said George Weston, the chief executive of Primark's owner, Associated British Foods. "We outperformed the bulk of the high street in the difficult times and we are outperforming them again." Primark's underlying sales rose by 3 per cent for the 24 weeks to 5 March.

However, Primark, which has 214 shops, including in Germany and Spain, warned that it would not be able to pass on higher costs to customers if it wanted to keep their business. The retailer said its operating profit margin was lower in the first half due to the increase in VAT and higher cotton prices, and that it expected further declines in the second half, as well as the likelihood of "continued weakness in UK consumer demand".

The upswing at Aldi and Lidl is arepeat of the spike in sales seen at both during the last recession and an almost equally dramatic loss of trade once it had ended, as shoppers returned to the big UK grocers.

Kantar said yesterday that Aldi and Lidl had delivered record market share of 3.3 per cent and 2.6 per cent respectively for the 12 weeks to 17 April.

Edward Garner, a director at Kantar, said: "While in comparison to other major outlets Aldi and Lidl's basket sizes remain relatively small, there is no doubt that these two retailers are now taking a larger portion of shoppers' spending." However, he cautioned that for now at least their performance was being driven by existing customers "sharply" increasing their spending, as opposed to a "re-run of 2008" when new shoppers flocked to their outlets.

Aldi's sales soared by 25.7 per cent for the 12 weeks to 28 December 2008. While the same discounter's sales rose by a more modest 15 per cent over the latest period, this still outstripped Tesco's growth of 3.2 per cent, Asda's 2.5 per cent, Sainsbury's 3.3 per cent and Morrisons' 4 per cent.

Clive Black, a retail analyst at Shore Capital, said: "The 'have nots' are continuing to search around for value, and not just because the discounters have a reputation for value for money. They also offer a limited range of products which removes temptation for shoppers."

Mr Black said there was a "polarisation" in the grocery sector between the "have-nots" and "haves" – or consumers not threatened by their economic circumstances – supported by a strong 7.7 per cent jump in sales at Waitrose, according to Kantar, androbust recent food figures from Marks & Spencer.

Still, the carnage on the high street continued yesterday. Carpetright, the floor coverings retailer, unveiled its second profits warning in a month. It also warned of similar cost pressures to Primark. The company has faced a 12 per cent rise in the price of polypropylene – the raw material for the 70 per cent of UK carpets that are man-made – in the last year, and warned that it had no choice but to pass most of this rise on to consumers.

On the outlook for its market, Neil Page, Carpetright's finance director, said: "We expect it to remain very difficult throughout 2011." He warned that he did not expect to see signs of a "real recovery" until 2013.

Game Group also disappointed,revealing a sharp drop in its sales in the first few months of the year, though it expects some improvements.