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Just a few years back, Matalan was the darling of the retail sector.

Its out-of-town stores selling acceptable fashions at knock-down prices wooed consumers away from high-street chains. The company's share price soared, with the City full of admiration for the way founder John Hargreaves had expanded the brand beyond its northern roots.

But now it looks as though the clothing discounter is coming apart at the seams. Pre-tax profits slumped by 48% from £117.4m to £60.7m in the year to the end of February, and like-for-like sales were down by 6.5%.

Lee Cooper, the jeans brand it acquired three years ago, made a loss of £0.2m. Matalan is rumoured to be vulnerable to bids from predatory venture capitalists, and there is also speculation that Hargreaves may sell his 52% stake if offered the right price.

Matalan blamed a series of problems for its dire results, including poor product choice, weak marketing, the wrong fashions, supply issues and price-cutting by rivals. But it also admits it has been affected by the expansion of supermarket chains such as Asda and Tesco into clothing, targeting exactly the same audience.

The company says it is trying to remedy the situation by re-establishing its value proposition, and to this end it is reducing average prices by 10%. It is also looking to achieve greater consistency in its marketing. Matalan brought its advertising in-house a year ago after splitting with M&C Saatchi, but so far this decision does not appear to have paid off.

Indeed, some observers are asking whether the Matalan concept has had its day. Will refocusing on value work in a climate where aggressive superstores can afford to sell pairs of jeans for £4? How can Matalan differentiate itself and tempt customers away from buying cheap fashion alongside their groceries?

We asked Dan Gyves, formerly marketing communications controller for Austin Reed and head of international marketing at Dr. Martens, now a consultant to the retail and fashion industries, and Mark Taylor, director of strategy and planning at ad agency RPM3, who has worked on retail brands including Sainsbury's, Laura Ashley, Staples and Greggs, how they thought Matalan could spark a revival.

VITAL SIGNS

Matalan annual results

2004 2003 2002 2001

Turnover (pounds m) 1,048.3 1,021.5 847.4 586.0

Operating profit (pounds m) 63.4 118.3 107.9 81.0

Pre-tax profit (pounds m) 60.7 117.4 107.6 82.9

Basic earnings per share (p) 10.6 21.3 18.4 14.5

Source: Matalan

DIAGNOSIS 1 - MARK TAYLOR, DIRECTOR OF STRATEGY AND PLANNING, RPM3

Matalan is a hero in need of rescue. Fortified with a mission to bring value to budget-hungry shoppers in the 80s and 90s, it pioneered what is now called the 'discounter' end of the market.

But being a superhero takes it toll, especially when all those around you start to steal your rallying cries.

Market polarisation in clothing is here to stay, and Matalan has a posse of other superheroes on its turf competing for the public's attention and support, most notably Wal-Mart and Tesco.

Once everyone has established the basics of low prices, improved environment and better product, you have to think and act heroically. Matalan hasn't.

Also, in the company's own words, it made some 'marketing-related errors': poor ranges, availability issues and misplaced high-end merchandise forays.

All at a time when Matalan was setting up stall as a financial services company.

To cap it all, this hero doesn't look very fashionable. Top Shop has learned 'fast fashion' and George at Asda is going global. Meanwhile, Matalan has Lee Cooper and Wolsey.

REMEDY

- Like all good heroes, stand up for something.

- Maintain the core value proposition, but rediscover an inspiring purpose for the brand beyond price.

- Build some fashion credentials and make them central to the way the business buys.

- Review the current brand portfolio, including Lee Cooper and Wolsey, and buy or build something more contemporary and distinctive.

DIAGNOSIS 2 - DAN GYVES, DIRECTOR, BINOCULAR MARKETING

It is clear that Matalan is suffering from competition on all fronts.

The growth of shopping villages, own-label basic products from stores such as Tesco, similar business models from the likes of TK Maxx and competitively priced fashion products from companies such as H&M are all taking a slice of the same retail pie. Even when not in direct competition, they are stealing a share of wallet.

There is also the issue of brand power and consumer understanding of its proposition. While many of its competitors have a clear raison d'etre, Matalan is trying to be something to everyone, and as a result it is confusing consumers.

We know Tesco will always provide good-quality and low-cost basics, while TK Maxx offers high-quality brands at competitive prices. Matalan sits somewhere in between the two, and as such it loses its identity.

It may only be a joke among friends, but it is telling that some people prefer to refer to Matalan as Mat Alan rather than admit where they shop.

REMEDY

- Appraise and define the brand position in the consumer's mind.

- Distinguish clearly between own-label, mid-level and high-end goods.

- Put less reliance on vertically integrated Matalan-owned brands such as Falmer and Easy.

- Communicate the brand offering to existing customers through direct marketing and build product-based communications through above-the-line and ambient campaigns.