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.
According to the influential trade magazine Retail Week, a Poundland store in Ipswich last week cut its prices to 93p to cope with the competition offered by a new “99p Stores” branch that had opened nearby.
Frequently, the company can be the Ryanair of the low-cost retail world – crowded and sometimes a little claustrophobic. It encountered threats of a boycott a couple of years ago when it banned staff from wearing the poppy.
In late October, the UK Supreme Court found that a scheme that had seen college graduate Cait Reilly required to work for nothing extra in Poundland in order to keep her welfare benefits was flawed, but the judges rejected charges that it amounted to “slave labour”.
In Croydon, one Poundland store was found to have put biscuits gnawed by mice back on the shelves, while another continued to sell a keyring in the shape of a Stanley knife even after it knew that customers who had purchased the product had been prosecuted for holding it.
However, the simplicity of the Poundland model remains attractive for customers – the £1 price fix has remained constant despite inflation, even if the number of pencils in a packet, for example, has been reduced over the years.
Meanwhile, the store has its own celebrity endorsement in the form of singer Britney Spears. In October, she told ITV that she had shopped in Poundland during a recent tour. Last year, despite a lurch in the career, she still earned $14 million.
“Usually I have glasses on and no one recognises me. I just go in and I’m really into what I’m doing and it’s really fun,” she said, breathlessly.
For the woman who seems to have everything, Poundland is still an attractive shopping choice.
Big Dealz: Cut-price chain plans to add 11 stores in Irish market
Poundland introduced the Dealz brand to the Irish market in September 2011 with the opening of stores in Blanchardstown and Portlaoise.
Since then it has expanded aggressively and in September of this year announced that it would add an extra 11 shops over a 15-month period. This will bring its network of stores to 41.
Chief executive Jim McCarthy told The Irish Times at the time that this would create 250 to 300 new jobs at the company and involve an investment of about €1.75 million.
Dealz employs about 750 staff in the Republic and has invested more than €8 million in its store network to date.
Mr McCarthy said the company is generating €50 million in annual revenues and sees continued growth opportunities here for some time to come.
“We think we can do more stores than that and we have a few years of growth left in Ireland,” he said, adding that the company is attracting 250,000 shoppers to its stores here every week.
Dealz guarantees to sell 97 per cent of its product here at €1.49 – Poundland stores in the UK sell items at £1. It carries a large range of branded items across 17 different categories.