99p Stores is planning to launch a transactional website but how might it work? Retail Week takes a look at how other value players have fared.
99p Stores is planning to launch a transactional website which will be one of the first in the value sector.
Many retailers with low price points have been put off launching online due to profitability concerns. It is particularly hard for single-price retailers due to the inflexible prices - any overhead can destroy their paper-thin margins.
In fact, we have yet to see a single price point site. Poundland has said it is on the ‘to-do’ list but is not a priority, instead focusing on overseas growth. Meanwhile Poundworld has attempted to overcome the online pricing problem by selling wholesale, serving market stall traders and independent value retailers from its website www.discount-wholesale.co.uk.
Director of Deloitte Digital Colin Jeffrey believes the value sector is going through a similar phase as the grocery sector a decade ago when supermarkets were trying to design a profitable model.
99p Stores is yet to reveal any detail about what its model will look like but it is clear that in order to be profitable, the retailer will need to ensure basket sizes are higher than 99p.
Jeffrey says: “The challenge is making the basket-size big enough to make it as profitable as its high street proposition,” he says.
The retailer may take inspiration from other value retailers trading online, which currently consists of Home Bargains, Wilkinson and Poundstretcher.
It hasn’t been a smooth launch into the digital arena for Poundstretcher, which relaunched its transactional site in June after scrapping its original site the year prior.
However its new site seems to be gaining traction. Poundstretcher has focused on increasing basket size to make it work. To do so, it has offered off-putting expensive, premium next-day delivery as its only fulfilment option. Poundstretcher says that the hefty £6.50 delivery tag has led to customers making the most out of the transaction and buying more. It has also started offering free delivery for transactions over £10 to increase basket size.
In addition, it has limited the number of lines it sells online to simplify the supply chain process, which it plans to extend once it has observed customer buying habits.
99p Stores may in fact opt not to be the single price point trailblazer. Its has the option to trade through its multi-price business Family Bargains, and therefore could operate a model similar to Poundstretcher.
It is clearly a difficult task but Jeffrey believes 99p Stores is right to venture online. “If you don’t do it someone else will,” he says. “It is wise to avoid things that dent profits but at the same time if you’re a customer-led retailer, customers will shop online. Deloitte research has shown that all the market’s growth is coming from online, while sales are flat across stores.”
Tackling the online puzzle is a risk, but in a sector where convenience is key, it could be one that is worth taking.