Poundland profits as thrifty shoppers look after pennies
Now valued at just shy of £1 billion, the cut-price retail continues to benefit from the recession
The acceleration in Poundland’s worth has mirrored the economic crisis since 2007 – its fortunes rose as the wider economy in the UK fell further into recession. Photograph: Matthew Lloyd/Bloomberg via Getty Images
Twenty-three years ago, a shop opened in Burton-on-Trent in England. Last month, it moved to bigger premises in the Staffordshire town, now employing 34 staff. In the meantime, nearly 500 sister stores have opened.
The business philosophy for the first Poundland was simple, if difficult to achieve: everything would sell for £1; everything would always sell for £1. Today, the company that began with just £50,000 in capital is heading to be worth shy of £1 billion.
The acceleration in the company’s worth has mirrored the economic crisis since 2007 – its fortunes rose as the wider economy in the UK fell. Just three years ago it was bought by a private equity firm for £200m.
Now, the owners are set to cash in, planning to head to the stock market in the first half of 2014. Over the last 18 months, it has added 70 stores, bringing the total to 460 – three times the number it had just five years ago.
The ambition of the company’s chief executive, Jim McCarthy – lured from Sainsbury with the promise of a major payout if targets were met – is bidding to put 1,000 Poundlands on the high street, saying that sales figures for the first half of 2013 were “ahead of our expectations”.
Each week, 4.5 million customers are served. Just a few years ago, all bar a few of them were in the C1, C2, D and E categories – lower middle-class, skilled working-class, along with those struggling at the bottom of society’s rung.
Rejecting the commonly- accepted view that Poundland is a child of the recession, McCarthy argues that the company does very well in tough times, but will do equally well once the confidence of British shoppers begins to improve.
Today, one in five of its customers are from the better-off AB demographic – attracted first by the hunt for value, but kept, say industry analysts, by a growing sense amongst shoppers that “value is good” in itself. Such shopping loyalty can be maintained, even if pockets are better filled, analysts believe.
Poundland’s growth was helped by the demise of Woolworth – the company that had once appealed so brilliantly to the demographic targeted today by Poundland, even if Woolworth had long since lost its way before the end.
Seizing the opportunity, Poundland branched out into sweets, offering its own branded products, along with specials, and now a few of its stores have started selling eggs. Managers retain high hopes that they will soon be among its most popular, if surprising, attractions.
Sometimes customers will go to Poundland for a few key products: toothpaste is popular, for example, so too are shampoos and hairsprays. On occasions, the store has sold products made for one retailer cheaper than its competitor was able to do so.
However, the company – which runs the €1.49 Dealz chain in Ireland – is the one of the oldest of the budget chains on the high street, a fact that leads some industry analysts to question the attractions of an IPO now for investors.