By Bill Wilson BBC News business reporter

Coming to a High Street near you

Piling high and selling cheap has been an established, if risky, retailing niche since time immemorial. Now, though, it's looking like the smartest strategy in a tough UK market.

The UK economy may be surprisingly robust, and British shoppers as avid as ever, but the only retailers that are really thriving are right at the bottom of the heap.

Bargain-basement outlets like Primark, TK Maxx, Matalan and Peacocks are stealthily taking annual market share away from middle-market retailers like M&S and Littlewoods, while forcing Next to lower prices.

Throw in the cheaply-priced clothes on offer at George/Asda and Tesco, and you have a formidable range of outlets providing clothes to fit even the tightest of budgets.

'No embarrassment'

Discount stores have gobbled up market share over the past seven years and now enjoy 18% of the UK clothing market, up from 15% in 2002.

Primark and Peacocks are looking to open in towns which would support them, which is why Primark is in Tooting not Knightsbridge Maureen Hinton, Verdict Research

And there seems little sign that trend is about to change, with increasingly smart stores and continued lowering of costs meaning the "value" challenge to the mainstream market is not about to go away.

"There are a number of reasons why the value-led retailers are doing well," says Maureen Hinton, senior retail analyst at Verdict Research.

"It includes sourcing of goods, opening stores in the right towns, lower-cost advertising, and the fact the people are no longer embarrassed to go into value retailers and buy the things they want."

Edging away from their lowly origins, in towns populated by cash-conscious shoppers on lower incomes, cut-price stores have slowly inched into the mid-market.

Profits soaring

On Wednesday, Associated British Foods said half-yearly sales at its 120 Primark discount clothing stores rose 7% on a like-for-like basis, while profits rose 23%.

Primark says it targets "the young fashion-conscious under-35s, offering fashionable quality merchandise at very competitive prices and value for money".

On the same day Welsh-based Peacocks announced a 24.3% rise in pre-tax profits in the first half of the financial year, and said it was to create 1,300 jobs across the UK and open 100 new stores.

The stores will include branches of Peacocks, clothing chain Bonmarche, and discount perfumers Fragrance Shop.

Proud as Peacocks in their clothes from the value-led Welsh chain

"Primark is very good at sourcing its clothes, and the other thing about it is that as it opens more stores, and is taking more volume of supplies, then they can negotiate a lower price," said Ms Hinton.

"Primark has been going direct to factories too, rather than going through a wholesaler.

"They also try to ensure that the stores are pleasant inside, and increasingly in really good locations, such as their outlet near to the Bullring in Birmingham.

"They used to be more in secondary sites, but are now moving more towards prime sites."

She continued: "Peacocks' idea is to stay more in secondary sites, where rental costs are cheaper.

"It is trying to cut its costs in general, including on supply, and, like Primark, it has been doing particularly well.

"Primark and Peacocks are looking to open in towns which would support them, which is why Primark is in Tooting not Knightsbridge."

All these factors are helping the value-led sector squeeze middle-market retailers.

Membership scheme

The original driving force behind the discount boom was Matalan, which introduced its first "cut-price club" for shoppers in Preston in 1985.

The retail group, which requires customers to join its members' club if they want to shop at any of the stores, now has more than 170 outlets across the UK.

It also buys direct from manufacturers, keeps to low-cost edge-of-town, or "off-centre" locations, and operates on low margins. It also has a membership scheme which gives it a database of customers it keeps in regular contact with.

Out of town, but thanks to its brochures, not out of mind

"Matalan was probably the first value-led outfit. They went off the boil a bit but have come back now, sending out regular brochures to their customers," said Maureen Hinton.

"They offer higher-valued lower-price items, including well-known brands, which they are able to price lowly because they buy a lot of them."

Value-led stores have also been careful to provide some quality and fashion, as well as low prices. TK Maxx, part of the US-based TJ Maxx, offers well-known brand names which, however, may not be the current season's fashions.

"They do very well with menswear, and are expanding very fast. They have got such buying power to source clothes from around the world," said Ms Hinton.

Meanwhile George, which sells clothes in Asda stores, is looking to open more stand-alone stores of its own.

Shot by both sides

It does not make bright reading for Marks & Spencer, which this week said pre-tax pre-exceptional profits for the six months to 2 October fell to �293m, down from �325m a year ago.

And like-for-like UK sales - which ignore new store openings - fell 4%, as M&S said recent trading had been tough. The company has now pledged to go back to basics, dropping many of the premium branded clothing lines it has introduced over the past coupole of years.

"They are in a difficult position," says Ms Hinton. "Not only are they up against Debenhams and Next in the middle market area, they have more affluent customers, who are now going to shops like Hobbs or Monsoon, which is chipping into their share.

"But if they go back to basics then they will be up against discount retailers."