Budget stores flourish – and we like some luxury

Pressure on household finances has led consumers to trade down to discount retailers and pushed up year-on-year spending in discount stores by 21 per cent, according to Barclaycard.

Hardpressed householders save money in budget chains like Lidl and spend their savings in M&S. Picture: Greg Macvean

However, luxury spending is also robust as people use spare cash to treat themselves, leaving only the middle market less attractive to shoppers.

Consumers are making sacrifices to allow themselves the occasional luxury purchase while tightening purse strings the rest of the time, experts have claimed.

High-end spending grew by 6 per cent in March compared to last year; with the average basket spend up almost 9 per cent to £121.

Barclays analysed spending at a selection of around 100 stores – from discount supermarkets to high-end designer clothing brands and food halls of luxury department stores.

Nearly a quarter more transactions were carried out at discount retailers such as Aldi or Lidl than the previous year, according to Barclaycard, which processes nearly half of all the UK’s debit and credit card transactions.

Valerie Soranno Keating, chief executive of Barclaycard, said: “During the economic downturn we saw a notable shift in spending patterns with many consumers ‘trading down’ and focusing on getting value for money. It’s a trend that’s continued into 2014, with discount retailers doing particularly well, and is likely to remain the case until we see meaningful and sustained wage growth.

“Perhaps a little surprisingly, however, we continue to see strong growth in the luxury sector as consumers make sacrifices elsewhere to afford a luxury purchase. This has created a ‘squeezed middle’ of retailers, many of whom are seeing flat or negative growth.”

She added that the huge growth in spending at value retailers and the strong performance in luxury spend was in stark contrast to more muted figures seen elsewhere.

At just 1.1 per cent last month, overall spend growth was below inflation for the first time in six months, while supermarket spend was down 2.6 per cent and department store sales were flat. Some mid-range clothing retailers such as Marks & Spencer, which is expected to report its third consecutive year of falling profit in May, have struggled in recent years, while supermarket giant Tesco is expected to report a 6 per cent fall in annual profit next week, its second straight decline following decades of growth.

“The challenge for those retailers caught in the middle is how to quickly adapt to meet the demand for greater value –whether that’s through the prices they charge, the products they stock or the channels they use,” said Ms Soranno Keating.

Gordon Emslie, a retail specialist at Falkirk-based GNE Consulting, said: “People very much want to keep treating themselves, but they also have a very strong perception of what is value.

“Even in just supermarket terms, you might get people going into Aldi or Lidl – or even Poundland – and spending £1 on a packet of biscuits rather than £1.20 and putting that extra away every time they shop.

“Then at the weekend, they pick up one of the higher-end meal deals at places like Waitrose and Marks & Spencer –where you get two courses and a bottle of wine for £10.”