Poundland has reported annual sales of more than £1bn for the first time as discounters pass another milestone in their transformation of the British high street .
From a single shop in Burton-on-Trent, the one-price chain has grown to 600 stores with a turnover on a par with more established names like WHSmith and more than double Mothercare’s. Poundland said it sold more than 1bn items priced at £1 - although it has been carpeted by the advertising watchdog for selling some products at more than a pound - with its top ten sellers including cotton buds, Cadbury’s Milk Tray and aluminium foil.
Retail industry experts say the emergence of Poundland, Aldi and Lidl as powerful retail brands has confirmed the impact of austerity and squeezed living standards on shopping tastes. Poundland passed the £1bn mark a week after Aldi overtook Waitrose to become the UK’s sixth-largest supermarket chain.
“Discounters have always been part of the retail scene, catering for people who didn’t have a lot of money,” said Clive Black, retail analyst at stockbroker Shore Capital. “What happened was that in 2011 the UK became a country that didn’t have a lot of money and bargain hunting became a national pastime and not just the preserve of people on low incomes.”
As the likes of Tesco and Sainsbury’s retrench by closing stores and mothballing sites, Poundland has ambitious plans to reach 1,000 outlets in the UK and Ireland and to expand in Europe, starting in recession-battered Spain.
A deal to buy rival chain 99p Stores could add 250 stores in one go, though the competition regulator has said it is unhappy about overlapping stores in 80 places. Even without the 99p Stores deal, Poundland is growing strongly, reporting a 12% rise in sales to £1.1bn for the year to March 29, with analysts predicting profits of around £44m.
With real wages finally starting to rise and the economy growing, the retailer believes its one-price policy will hold firm despite the return of the feelgood factor for shoppers.
Jim McCarthy, Poundland’s chief executive, said that its US counterpart Dollar Tree has been selling all items for a dollar or less for about twice the time Poundland has been trading.
“It is much tougher to deliver that at a dollar than at a pound and that tells you there is longevity in this offer.”
Poundland launched 25 years ago when Steve Smith opened the first store in Burton-on-Trent with the help of a £50,000 loan from his father. Smith, who became a multimillionaire when he sold the business in 2002, came across the idea for Poundland while helping out on his father’s market stall in Bilston market in the west Midlands. He had seen shoppers snap up goods from a box of items with damaged packaging all priced at 10p.
The company grew steadily to 100 stores by the early 2000s when it was sold for £50m, which compares with its stockmarket valuation today of £830m. By 2006 there were 150 shops selling to mainly lower income customers. Better-off shoppers had little incentive to move downmarket at the peak of a long consumer boom.
The great recession and the age of austerity were the making of Poundland. Rising unemployment, high household debts and soaring inflation for essential goods made bargain hunting a necessity for more people. Then it became fashionable as names such as Aldi, Lidl, Primark and B&M came to the fore.
Poundland said more than one in five of its customers is now from the affluent AB socioeconomic group. Well-heeled shoppers are happy to pull up to Poundland in a BMW or a Mercedes to look for deals, according to Shore Capital’s Black.
The sales figure for 2015 is three times the company’s revenues for 2006. The top-line revenue growth of 12% has been fuelled by opening new stores but sales at branches open for a year or more rose 2.4%.
Just as the discounters have helped eat into the big supermarkets’ sales, Poundland is taking advantage by striking better deals that help it keep prices low. The big grocers are ordering less but Aldi and Lidl mainly sell their own brands so suppliers turn to Poundland, McCarthy said.
McCarthy, who ran Sainsbury’s convenience stores before switching in 2006, said: “Suppliers are always interested in businesses that are growing. They like to deal with us because they get volume, we make quick decisions and they get paid on time and in full.”
Poundland also scours the world for deals it cannot get in the UK, including from the US and Asia. For example, it buys multipacks of Polo mints from Indonesia though that bit of dealmaking got the company bad press in 2008 when a store close to Nestle’s Rowntree factory in York was found selling the sweets.
McCarthy says keeping costs down is also an important part of his £1 offer. Like other big retailers, the company has not signed up to the living wage.
Two years ago, the supreme court ruled that a government scheme requiring Cait Reilly, a geography graduate, to work for free at Poundland was legally flawed.
Some analysts have argued that the price paid by society for ultra-cheap goods is low wages and squeezed suppliers. But more than £1bn of sales says the draw of a bargain is enduring.
Black at Shore Capital said: “Things will ebb and flow but the discount genie is out of the bottle and it isn’t going back.”
Poundland’s top 10 sellers
Toblerone 170g
Maltesers box 120g
10 plus 1 Kodak batteries
Replay DVDs
Johnson & Johnson cotton buds
Classic Finish dishwasher tablets - 10 pack
Cadbury’s Milk Tray
Semi skimmed milk - 2 litre
Aluminium foil
Silksoft toilet roll
