Over the five years through 2013-14, revenue for the discount variety stores industry is expected to grow at an annualised 1.3 per cent, according to IbisWorld.
In 2013-14, the industry is forecast to grow by 1.1 per cent to reach $2.4 billion. The next five years are expected to be less rewarding for the industry. The falling Australian dollar is expected to lead to struggling firms leaving the industry.
Its appeal to the price sensitive consumer has led to above average growth during the global financial crisis, unlike most other retail industries.
IbisWorld industry analyst, Sebastian Chia, says the industry has also benefited from an elevated Australian dollar, which has allowed firms to buy goods at lower prices, leading to higher margins on goods sold.
The industry consists of a few larger players and numerous smaller owner-operated stores. Over the past five years, there have been a number of highly publicised struggles in the industry, with the closure of a large number of Dimmeys and DSG Holdings stores illustrating the rising pressures facing the industry.
The industry leader, Reject Shop, has pursued aggressive expansion to dominate the industry. The emergence of efficient global competition, in the form of Japanese chain Daiso, is expected to increase pressure on owner-operators within the industry through the use of vast global economies of scale.
Competition from online and discount department stores is expected to intensify, further increasing pressure on firms. The growth shown by Big W, Kmart, and Target is expected to continue to constrain industry revenue.
“Industry leaders will have to streamline supply chains and increase efficiencies to stay relevant,” says Chia.
Online deal stores and aggregators are expected to satisfy consumer appetite for niche and low cost goods. Firms that are able to capitalise on their proximity to consumers will benefit.
Discount variety stores are characterised by a medium level of market share concentration. Outside of the major players, the industry is highly fragmented, allowing many smaller players to operate within the industry.
Although marketshare concentration remains at a moderate level, it has decreased over the past five years. While the industry’s largest player, the Reject Shop, has grown substantially, other major players have rapidly declined. This reduced concentration has provided an opportunity for smaller players to enter the industry.
For more information, visit IbisWorld’s Discount Variety Stores report.