Why are budget retailers struggling in a cost-of-living crisis?

In theory, budget retailers like Poundland should be thriving as the UK grapples with a cost-of-living crisis. Yet, the reality is starkly different. According to the BBC, more than 100 Poundland stores have been earmarked for closure since the summer, with the company shrinking its footprint from over 800 stores to between 650 and 700 by year-end (see BBC story). This paradox raises a pressing question: why are household-name budget shops struggling when consumers are more price-conscious than ever?

A closer look at Poundland

Poundland’s closure of its Peckham store after 11 years, despite steady footfall in a deprived area, has become emblematic of the wider crisis facing discount retailers. The business was sold for a nominal £1 in June amid “challenging trading conditions,” and other discount chains like The Original Factory Shop and Maxideal have also shuttered stores or closed entirely.

Top 5 reasons for budget stores’ challenges

1. Changing consumer behavior and savvy shoppers
   Consumers haven’t fallen out of love with budget shopping, but their approach has evolved. Shoppers now compare prices across multiple stores, stay alert to promotions, and share deals via smartphones. Instead of relying on discount stores for all their needs, they selectively buy only the cheapest items, undermining the broad basket sales that budget retailers depend on.
2. Eroding value of the single-price Model
   Inflation has dramatically eroded the value of the £1 price point. What could be bought for £1 in 1990 is now worth only about 40p. This has forced retailers like Poundland to abandon their iconic single-price strategy, diluting their brand identity and making them less distinctive in a crowded market.
3. Rising operational costs
   Budget retailers operate on razor-thin margins. Recent increases in employer costs, such as higher National Insurance contributions, minimum wage hikes, and new packaging levies, have hit these chains hard. Unlike premium retailers, budget shops have little room to absorb or pass on these costs, leading to store closures and reduced profitability.
4. Fierce competition from supermarkets and online platforms
   Supermarkets have aggressively targeted the budget segment, offering competitive prices and loyalty programs. Meanwhile, online platforms like Temu, AliExpress, and TikTok Shop allow sellers to undercut traditional retailers, further eroding the customer base of brick-and-mortar discount stores.
5. Supply chain disruptions and product mix challenges
   Post-pandemic shipping delays and high freight costs have made it difficult for budget retailers to maintain low prices. Success now depends on a nuanced product mix, balancing branded UK goods with direct imports from China. Retailers who fail to adapt quickly risk losing relevance and profitability.

Rising retail crime poses an existential threat

Compounding these trends is a surge in retail crime, particularly shoplifting. The UK has seen shoplifting incidents rise to record levels, with over 530,000 offences reported in the year to March 2025 (20% increase from the previous year). Retail theft now costs the industry more than £2.2 billion annually, and violence against staff is at an all-time high. Organized crime gangs and opportunistic theft have forced retailers to invest heavily in security, further squeezing margins as the holiday shopping season approaches.

Technology to the rescue: SAI Group’s visual AI platform

As traditional security measures struggle to keep pace, leading retailers are turning to innovative solutions like the Visual AI platform from SAI Group. Trusted by 3 of the top 5 UK retailers, SAI Group’s platform leverages advanced computer vision and AI analytics to detect and prevent shoplifting in real time.

Key features and benefits

• Real-Time Detection: Monitors live CCTV feeds to identify suspicious behaviors—such as repeated visits to specific aisles or concealment of items—and sends instant alerts to store personnel.
• Hotspot Tracking: Pinpoints shoplifting hotspots, enabling targeted security measures.
• Evidence Integration: Captures and organizes evidence to assist law enforcement in prosecuting offenders.
• Scalability: Deployed across thousands of retail locations, monitoring millions of transactions daily.
• Violence Prevention: Accurately identifies anti-social behavior and aggression, helping to de-escalate situations with real-time interfaces to security teams.
• Compliance and Security: SOC2, ISO 27001, ISO 42001, and UK Cyber Essentials certified; fully GDPR and CCPA compliant.

By reducing theft, improving staff safety, and streamlining operations, SAI Group’s Visual AI platform helps retailers protect profits and create safer shopping environments.

The struggles of Poundland and other budget retailers during a cost-of-living crisis reveal a complex interplay of changing consumer habits, eroding price models, rising costs, fierce competition, and supply chain woes. As the surge in retail crime threatens to aggravate the crises, the industry must embrace technological innovation to survive. SAI Group’s Visual AI platform stands out as a trusted solution, empowering retailers to detect and prevent shoplifting, safeguard staff, and secure their future in a rapidly evolving market.

About SAI

As a leader in computer vision technology, SAI Group delivers cutting-edge, multi-modal AI solutions into retail environments. Using a unique platform approach, its technology uses existing camera systems to target losses, increase store safety, and underpin operational efficiencies.

All solutions are built from the ground up to ensure the highest levels of security and data protection, respecting the privacy expectations of the public and operating to stringent ethical standards while delivering substantial value to our clients. Globally, SAI monitors millions of transactions per day, protecting the revenues from tens of millions of product sales and hundreds of millions of customer interactions. Its models also accurately identify anti-social behaviour, aggression and violence, helping to de-escalate situations with real-time interfaces to security officers and operations centres.