Unleashing the Power of the Wilko Brand: A Buyer's Guide to Conquering the Thriving Value Market

Amidst the prevalent cost of living crisis, consumers are increasingly resorting to value retailers to economize their expenses due to the strain on household budgets.

According to GlobalData, nearly half (48%) of consumers in the UK are opting for trade-downs, either in terms of the products they purchase or the stores they frequent. As a result of this trade-down trend, discounters in the grocery sector have witnessed a growth in their market share. Aldi, for instance, surpassed Morrisons last year to become the fourth largest supermarket chain in the UK.

The UK value, discount, variety stores, and general merchandise retail sector is projected to achieve a 5% annual growth, reaching a value of £59.4bn by 2027, as forecasted by GlobalData. With discounters causing the most disruption in the food and grocery sector, the value home and electricals sector is also expected to experience growth, with sales increasing by £1.2bn in the next five years.

Wilko's collapse came as a surprise to many, considering the favorable macroeconomic environment for value retailers. Last week, the retailer fell into administration and PwC was appointed to oversee the process.

According to Richard Lim, the CEO of Retail Economics, Wilko was not prepared for success. He points out that the retailer's failure to make significant changes and become a sustainable business ultimately led to its inevitable slide into administration.

The company had an excess of stores located in unsuitable areas and had neglected to enhance their appeal to customers. Additionally, Wilko had not made sufficient investments in their online presence to become a fully integrated retailer. Relying solely on nostalgia for the brand will not guarantee the retailer's commercial success.

Richard Lim, Retail Economics

“It doesn’t have a compelling enough proposition given the competitive environment,” he says.

Wilko's failure to promptly address significant errors in its business operations should be viewed as a rare occurrence in the discount retail industry, rather than a reflection of its future course. According to Nick Gladding, the chief retail analyst at GlobalData, the demand for discount retailers is expected to remain robust.

Several parties are said to be interested in purchasing part or all of the business. Potential bidders, including retail giants and financial organizations, have until the end of today (16 August) to express their interest. The extent to which these parties wish to buy the business is currently unclear. Some potential buyers may only be interested in acquiring Wilko's physical stores or its stock, while others may be interested in acquiring the brand and its intellectual property.

Tesco acquired the brand of the collapsed stationery business Paperchase in January this year, without acquiring any of its stores.

The type of deal that is made between the administrators of Wilko and a potential buyer will greatly depend on the current state of their business and the value of the company's assets.

Despite Wilko's execution mistakes, the business still holds appeal for potential buyers due to its valuable brand. Lim asserts that the brand has sentimental appeal and is widely recognized on the British high street, where it has been a long-standing fixture.

According to YouGov’s BrandIndex platform, Wilko maintains stronger brand strength compared to other retailers despite its administration collapse. As of July 31, 2023, Wilko's index score was 28.4, while the retail sector average stood at 11.1.

The index score serves as a comprehensive measure, combining metrics such as impression, value, and purchase intent to evaluate the overall brand health. YouGov’s BrandIndex reveals that other value retailers like Home Bargains, B&M Stores, and Poundland exhibit considerably lower brand health.

As of 31 July 2023, Home Bargains had an index score of 19.6, B&M achieved 18.6 and Poundland scored just 4.5.

Source: YouGov BrandIndex

Wilko has consistently surpassed its rival retailers in terms of both quality and value perceptions over the past year. On 31 July, its value score stood at 40.3, while B&M, Home Bargains, and Poundland recorded scores of 35.6, 35.4, and 24.0 respectively. The sector average, on the other hand, was 5.7.

Wilko stands out for its superior quality compared to its competitors B&M, Home Bargain, and Poundland. As of 31 July, Wilko had an impressive quality score of 13.4, surpassing its nearest discount competitor, Home Bargains, by a significant margin of -0.1.

Reports suggest that rival discount retailers may be interested in bidding for Wilko.

Discount retailers cannot afford to become complacent if they wish to maintain their success, according to Gladding from GlobalData. In order to retain customer loyalty, retailers must adjust their product offerings to align with the recovering economy. This will involve an increased emphasis on quality, enhancement of ethical credentials, and a broader range of higher-priced items.

Acquiring the Wilko brand has the potential to enhance the perception of quality for a potential buyer. However, Lim warns that if someone were to purchase certain parts of the business, they would need to allocate time and financial resources to make it successful.

"It is important to note that simply relying on nostalgia for the brand will not guarantee the retailer's commercial success," he explains. "There is considerable effort required to overhaul the business and establish a solid foundation for its turnaround."