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Poundland

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Poundland
Company typePrivate limited company
IndustryRetail
FoundedApril 1990
FounderDave Dodd and Stephen Smith
HeadquartersUnited Kingdom Willenhall, England, UK
Number of locations
227 (September 2009)[1]
Key people
David Dodd (Co-Founder)
Colin Smith (Chairman)
James "Jim" McCarthy (Chief Executive)
ProductsGroceries, Consumer goods, DIY, electrical
RevenueIncrease£396 million (2009)[2]
Increase£16 million (2008)[3]
Increase£11.8 million (2009)[4]
OwnerAdvent International
Number of employees
6500 (2009)
Websitewww.poundland.co.uk

Poundland is a British-based variety store chain which sells every item in its stores for £1.[5] Established in April 1990 by Dave Dodd and Stephen Smith, Poundland stock a variety of around 3000[6] different products, such as home and kitchen-ware, gifts and healthcare products, many of which are brand name and clearance products. Like many of its rivals, Poundland operates a constantly rotating product line of cheaply-bought bulk products, some of which have been known to get recalled by the retailer due to failing health and safety regulations.[7] Although price-point retailing was invented in the United States during the 1870s, the chain claims to have introduced this concept to Europe[8] and is the largest single-price retailer in Europe.[1] The retailer claims that their Croydon store is the busiest single-priced outlet in the world, generating more than £9 million in revenue per year with 30,000 customers a week, which as of December 2008, was more than any of its yen and dollar counterparts in Japan and the USA respectively.[6]

Poundland have enjoyed strong sales growth and have maintained steady profit growth against increasing inflation. This, amongst other factors, has been aided by a strong customer base of predominantly female shoppers every week in the C1, C2, D and E categories[9] (a system of demographic classification used in the United Kingdom). The chain employs 6,500 staff and their company union is the Union of Shop, Distributive and Allied Workers (USDAW). Their closest rival in the market is 99p Stores, who undercut Poundland's prices by a penny.

It was announced in September 2008 that Poundland's owners, Advent International, are said to be cashing in on the resurgence in value retailers by putting the chain up for sale. The report comes as figures show that value retailers are seeing business boom in the current economic climate.[10]

History

Formation

The retail chain was founded in April 1990 by Dave Dodd and Stephen Smith[5] with a starting capital of just £50,000,[11] claiming to have introduced the concept of single-price retailing.

A Poundland store in Peterborough, England

The first pilot store opened in December 1990 in the Octagon Centre, Burton upon Trent, after countless turndowns by big landlords who had reservations about allowing such a store to operate,[11] given they could easily undercut every retailer in sight. It was soon followed by other stores, most notably on The High Street, Meadowhall. Growth continued throughout the early 1990s, with 6 stores by December 1991 and a further 7 a year later. A difficult year was during 1995, when Smith failed to plan for additional warehouse capacity, and it soon became apparent their retail growth was pushing the capacity of their warehouse past its limits, with stock theft reaching unacceptably high levels. In response, a new 130,000 square feet (12,000 m2) warehouse was built, although at a cost of heavy profit losses, from £850,000 in 1994, to £400,000 in 1995.[11] The retailer managed to resolve their operational difficulties throughout 1996 when their new warehouse site became fully operational.

Early 2000s

Although enduring a troubled first few years, Poundland has since become a multi-million pound business, with its 150th store opening in Northampton in mid-2006 and a gross turnover of £311 million in 2007, up from £281m the previous year.[9] Following a management buy-out in 2002, the company has continued to grow with annual profit growth of 23.44% (2007)[8] and aims to continue its store expansion by 30 a year into 2009, overseen by James McCarthy. Chairman Colin Smith, speaking in April 2005 as Poundland revealed it had invested £20-25 million in building a 300,000 square feet (28,000 m2) distribution centre, said there was great scope for further growth, saying "We can clearly conceive this chain having 400-plus stores in future".[12]

Poundland operate a recycling initiative where they will give money for old mobile phones, whilst at the same time making charitable contributions and helping the environment.[13]

Late-2000s economic crisis

Reports emerged in September 2008 that Poundland's owners, Advent International, have put the retail chain up for sale. The report comes as figures show that value retailers are seeing business boom in the current economic climate.[10] Poundland, unlike many of its rivals, have been one of the few to report strong sales in a time of economic crisis, with 2008-2009 revenue just short of £400m, up from £330m for 2007-2008.[6] Despite this, Poundland have not been totally immune to the recession, with the retailer being forced to close down stores which they deem to not be financially viable, even if well positioned. Such was the case with their store in West Ealing, where it is believed high rental costs were one of the reasons why the company pulled out of the area.[14] Although the chain has seen their strongest growth and sales during the recession, CEO Jim McCarthy notes that there is a common misconception that Poundland is a better business in a recession, when actually they're better during normal economic conditions, but are very robust to manage well despite the state of the economy.[1]

When the rate of VAT was reduced in November 2008 to 15%, Poundland's prices remained fixed at £1, by reason that they have kept the same single price point of £1 for 18 years and during that time have always absorbed duty and increased supplier costs without raising its price point. Chief executive Jim McCarthy said the chain will pass the savings on to customers in other ways.[15]

With difficult economic conditions continuing into 2009, the supermarket retailer Asda announced in January 2009 that they would cut the price of many of their branded products such as Colgate toothpaste to just £1, in competition with Poundland who are offering the same branded products at the £1 price point. In response, Poundland introduced multi-buy offers to provide a larger quantity of the products for the same price of £1.[16] The announcement comes after reports show that value retailers are seeing their sales and profits boom during the credit crunch, with value-conscious customers making the switch from traditional larger supermarket retailers for their everyday necessities.[6]

Management

In 2002, Dave Dodd, co-founder of the chain, led a management buy-out by Advent International worth £47.5m for 78% of the company,[8] where he received £304,000, making him worth some £25 million at that time.[5] The sale allowed for the company's accelerated growth, expanding the store portfolio to well over 150 throughout the UK and creating an additional 500 jobs.[17] He became chief executive with a 12% share in the business, and brought in Colin Smith as chairman, former chief executive of Safeway.

James McCarthy took over from Dave Dodd as chief executive of the value retailer in September 2006. He joined Poundland having been lured away as managing director at Sainsbury's,[18] with the offer of an "attractive equity incentive" that he will be able to cash in when the group's US owner, Advent International, sells out.[19]

Business practice

Poundland truck transporting goods from warehouses to Poundland stores

DHL Exel Supply Chain announced in March 2008 that it won a new three year contract worth £9 million with Poundland for transporting and supplying stock.[20] DHL will be importing consumer products from overseas countries such as China, to transport them to Poundland stores throughout the UK. DHL will transport a variety of products for Poundland from UK outbases in Billingham, Hatfield and Belshill.[20]

Sales strategy

Poundland's biggest sales advantage is their price consistency across all products. Whilst other retailers must decide upon the price of each individual product and have this clearly displayed to their customers, Poundland may simply move stock onto its shelves from their warehouses, so customers always know how much a product costs.[11] Poundland promote this strategy through their slogan, "Yes, Everything's £1!". Although the retailer encountered initial scepticism from some suppliers worried about selling their top brands in a discount environment, this was quickly dispelled and the big brand suppliers now deal directly with the retailer. Suppliers can see the benefits to this strategy being that they know exactly where the products are going, the quantity being told and the price the retailer is selling them at.[21] Running a store in which prices cannot change at all presents interesting challenges, particularly with inflation, as it is difficult to change all the signs to read "everything is £1.05", although inflation has also meant that there are products which could not previously sell that suddenly are on their radar due to RRP prices exceeding £1.[22] Upon joining Poundland as CEO, McCarthy had plans to expand the price offering and increase the margin, envisaging a £2 section, a 50p section, a discount zone and so forth. Upon visiting America to see how the discount stores over there did it, the overwhelming message was not to change the single price as customers understand it.[23] The retailer is able to dismiss concerns whenever the pound becomes weak, as this means shipping and freight costs also reduce, which counteract the impact of a weaker pound.[6]

Since November 2003, all of Poundland's stores have been using an advanced point of sale solution ­developed in-house ­running on Epson's touchscreen Intelligent Registers (IRs).[24] The primary purpose is to track and understand which products customers are buying, allowing for up-to-date tracking of the most popular products, helping to ensure constant stock via automated ordering.[24] Their PoS system is set to improve further, with trials underway of contactless payments in two of their London stores for payments of £10 or less to make purchasing goods even quicker. The technology was introduced in 2007, but few retailers have so far announced full roll-outs of it.[25]

Plans to launch a transactional web site before the end of 2009 were under consideration during 2008-2009, in an effort to attract consumers not served by any of its stores. The proposed site would offer a limited range of products with best-sellers and seasonal items featuring strongly, such as Halloween and Christmas products. Poundland ran a similar trial scheme during the early 2000s, with an average transaction value of £25.[26] However, CEO James McCarthy said he had decided to postpone plans for transactional web site indefinitely, to concentrate on opening new stores.[27]

Products offered

"Toolbox" branded Poundland DIY products

Poundland offer a range of over 3000 products,[6] with 10,000 new products featured in any year. David Coxon, Buying & Merchandising Director, defines stock as falling into one of three different categories: ongoing core lines (products bought direct from the manufacturer), seasonal ranges and clearance stock.[28] Until recently, all unbranded products stocked by Poundland, which account for roughly 70% of total stock,[9] would carry the Poundland branding and logo. However, the retailer has been able to increase sales by removing the Poundland branding and creating around 50 sub-brands, such as Beauty Nation, Kitchen Corner and Toolbox for its value line of DIY products.[6] In total, the retailer stocks more than 800 branded products,[6] the majority being food and drink,[29] and more recently have introduced eggs to eight of its stores as part of a trial, which the retailer believes is likely to be a "top 20 volume seller".[26] In 2003, The Grocer reported that approximately 400 of the chain's 2000 stock-keeping units (SKUs) are in impulse and grocery lines.[21] Food products now account for 14 per cent of store space and 28 per cent of revenue,[26] with 55% of its customers purchasing food or drink, particularly taking advantage of their multibuy offers such as four-for-£1 deals on branded crisps, confectionery and soft drinks.[30] Poundland often sell large quantities of their stock to other retailers off-the-shelf, where it is cheaper for these retailers to pay £1 each for a bulk purchase than it would be to pay a discounted bulk-purchase rate elsewhere.[11]

As well as their own brand line of products, the retailer also sells hundreds of products from other top brands such as Colgate, Walkers and Cadburys to name a few.[31] Poundland are officially Britain's largest seller of batteries, stocking reputable brands such as Sony, Panasonic and Kodak in quantities priced more competitive than their closest rivals,[28] with the Kodak batteries being one of their best sellers.[32] Some of the products offered by Poundland which carry their branding are in fact supplied by manufacturers who are fussier about the retail positioning of their products and would rather allow their products to sell without their own branding attached.[11]

Store expansion

Store growth from 2000-2009

As can be seen in the graph to the left, store growth was slow, but steady year-on-year until 2003, when the retailer almost doubled their amount of stores over the 3 year period to 2006, from 80 to 150. Growth then stablised again at around 150 stores until early 2008, when the retailer took advantage of the economic downturn to further expand their store portfolio at an average rate of 3.7 stores a month, from February 2008 - September 2009. Poundland have a keen interest to expand their store portfolio by 30 new stores every year,[33] whilst also increasing its optimum store size by 25% to around 7,000 square feet (650 m2), comprising around 5,000 square feet (460 m2) of sales space.[34] Poundland's property director Craig Bales is responsible for store expansion, saying that "although the economy was suffering, this had not resulted in a ready supply of suitable stores for expansion."[34]

In 2007, Chief Executive Jim McCarthy said that the retailer would consider expanding operations into Europe and the far east once it has extended its UK portfolio to 650 stores.[29] The retailer reached their first milestone in May 2004 with their 100th store opening in Merry Hill shopping centre, Dudley,[35] and on 27 November 2008, Coronation Street actor Anthony Cotton opened Poundland's 200th store at the Frenchgate Centre in Doncaster,[36] with plans to have more than 250 stores by the end of 2009.[6] The retailer plans to expand into Northern Ireland before Christmas 2009, by opening 6 new stores there, selling locally-sourced goods such as milk as well as the usual branded products.[1]

Customer base

Poundland boast a loyal customer base, with roughly 2 million predominantly female shoppers (who account for roughly 80% of the customer base[28]) every week in the C1, C2, D and E categories.[9] However, it claims 10% of its customers are in the A/B group, with the retailer seeing a 22% rise in the number of shoppers in this group over the 2007/2008 period.[37] Poundland also attract students and the elderly who typically watch their budgets and look for bargains.[9]

The retailer has been keen in recent years to move away from their reputation of only appealing to low-income households, as they continue to expand into mainstream shopping centres and districts, with an increasing number of higher earning consumers in the market for a bargain.[9] Poundland's ability to fight inflation by guaranteeing their prices will remain consistent is just one factor in their appeal to a larger customer base.[38]

An increasing number of households are seeing Poundland as a means to purchase their regular household necessities at a time of financial struggle. Whilst some high street shops have reported a downturn in profits, Poundland, a member of the bargain shop retail sector, have seen strong growth attributed to rapid price inflation of many of the household necessities,[39] with an increasing number of hard-pressed customers visiting its stores for bargains, bulk buying items such as toothpaste and tinned food.[40]

Competition

99p Stores are Poundland's closest rival and competitor in the price-point retail sector

Value and discount retailers have seen a boom in sales since the recession at the start of 2009. Although there are several retailers with the same strategy as Poundland, such as independent businesses and smaller price-point retail chains such as Poundworld, Poundland's closest and largest rival in the sector is 99p Stores, whose buying director Faisal Lalani cited one of their main aims being to catch up with Poundland and their 223 stores as of August 2009.[41]

Other larger chains have also been hit by the success of discount retailers, with many budget-concious customers making the switch from traditional larger supermarket retailers for their everyday necessities.[6] A strategy adopted by Poundland to lure customers away from the larger supermarket chains is to give them confidence with reputable household brands, then bring them in en-masse by selling those names at prices that defy and undercut almost any competition, at which point try to entice the 40% to impulse buy other products on offer, hopefully own-brand, that they may not necessarily have planned to purchase.[28] In response to this trend, supermarket retailer Asda announced in January 2009 that they would cut the price of many of their branded products such as Colgate toothpaste to just £1, in competition with Poundland who are offering the same branded products at the £1 price point. In an effort to stiffle the competition, Poundland introduced multi-buy offers to provide a larger quantity of the products for the same price of £1 to avoid deterring this lucrative band of customers back to Poundland's larger competitors.[16] However, research conducted by The Grocer magazine in August 2009 found that of the 1300-odd supposedly discounted products on sale in ASDA during July 2009, a third were the same price as in March 2008 whilst 173 products had been selling for less than £1 during Spring 2009,[28] whilst prices at Poundland have remained fixed since the chain was founded in 1990.

Financial performance

Poundland have seen strong increases in turnover year on year,[42] helped by an increase of store openings and turbulant economic conditions.

Week ending Turnover (£m) Gross profit (£m) Trading profit (£m) Pre-Tax profit (£m) Retained profit (£m)
31 March 2009 396[2] 8.6[2] 11.8[4]
30 March 2008 330 16 4.2[2] 8
1 April 2007 310.7 112.9 11.7 5.6 3.5
2 April 2006 281.2 100.4 5.4 4.2 0.15
3 April 2005 239.9 89.4 14.8 10.7 -0.68
28 March 2004 195.5 71.6 13.9 10.9 7.1
30 March 2003 192.9 67.2 9.5 4.9 8.8

Criticism

Environmental concerns

In 2008, Poundland infuriated green campaigners by flying Polo peppermints 7,300 miles (11,700 km) into the UK from Indonesia, rather than sourcing them locally. Despite Poundland being close to the Nestle Rowntree factory in York, which has made the mint since 1948, Poundland insists it is cheaper for them to source the product from overseas, even taking in to account transport costs, to ensure it can continue to provide its customers with value for money.[43]

Health and safety

Although Poundland claim that they strive to provide its customers with good quality products whilst keeping the cost low, there are occasionally some products which fail to meet health and safety standards, and in some cases pose a health threat to the consumer. One such example occurred in February 2006, when dangerous car jump leads were withdrawn from sale across all stores. Although the cable gave the appearance of being heavy duty, it was found to only have a 3 amp wire in the centre following tests by council officers which, if used, could quickly overheat, melt and possibly catch fire.[7] More recently, the retailer has been forced to recall Halloween witch hats, as checks on the item revealed a small number of chemicals classified as unsafe for young children.[44]

Aside from potentially unsafe products, Poundland has also been found guilty of blocking fire exits at a cost to the company of £3000,[45] as well as also being fined £13,000 in 2005 for unsafe racking in its warehouse.[46]

Customer perception

Reviewers tend to speak positively about the store on many online review sites, however, some tend to criticize poor store layout, design and overcrowding, as well as inadequate customer service and staff knowledge.[47] Despite this, in a survey the retailer conducted in July 2007, 99% of respondents said they would recommend the chain.[9]

See also

References

  1. ^ a b c d "Poundland to open six NI stores". BBC News. 10 September 2009. Retrieved 2009-09-12.
  2. ^ a b c d "Poundland plans expansion". FT.com. 2 June 2009. Retrieved 2009-06-11.
  3. ^ "Poundland's profits up". The Guardian. 7 October 2008. Retrieved 2008-10-11.
  4. ^ a b "Poundland piles on the profits". The Scotsman. 2 June 2009. Retrieved 2009-06-11.
  5. ^ a b c "Poundland buy-out puts Dodd on cloud nine". icBirmingham. 2004.
  6. ^ a b c d e f g h i j "Poundland is booming". The Guardian. 6 December, 2008. Retrieved 2008-12-11. {{cite web}}: Check date values in: |date= (help)
  7. ^ a b "Dangerous jump lead withdrawn from sale". Newham.gov.uk. 20 February 2006.
  8. ^ a b c "Poundland financial figures and facts". Fast Track.
  9. ^ a b c d e f g "Poundland seeks to widen appeal as consumers tighten belts". Marketing Week. 6 March 2008. Retrieved 2008-04-16.
  10. ^ a b "Poundland owners put stores on market". Express and Star. 15 September 2008. Retrieved 2008-10-11.
  11. ^ a b c d e f "Coining it in". Real Business. 30 August 2007.
  12. ^ "Poundland gears up to reach 400 outlet total". Grocer. 16 April 2005. Retrieved 2008-10-16.
  13. ^ "Poundland - Make money from your old mobile". Poundland.
  14. ^ "The recession claims another West Ealing shop". Ealing today. Retrieved 2009-09-01.
  15. ^ "Poundland is staying quids in after Vat cut". Times Online. 30 November, 2008. Retrieved 2008-11-30. {{cite web}}: Check date values in: |date= (help)
  16. ^ a b "Asda war on Poundland". The Mirror. 2 January, 2009. Retrieved 2009-01-02. {{cite web}}: Check date values in: |date= (help)
  17. ^ "Advent Intl. Funds Poundland Buyout". All Business. 18 June 2002.
  18. ^ "Poundland Limited - Google Finance". Google.
  19. ^ "Poundland poaches Sainsbury's chief". The Independent. 18 May 2006. Retrieved 2008-09-23.
  20. ^ a b "DHL Secures 9 Million Contract With Poundland". HellMail.co.uk. 21 March 2008. Retrieved 2008-04-16.
  21. ^ a b "Poundland `winning supplier confidence'". The Grocer. 8 February, 2003. Retrieved 2009-09-22. {{cite web}}: Check date values in: |date= (help)
  22. ^ "How do pound shops cope with inflation?". BBC News. 23 October, 2008. Retrieved 2008-11-06. {{cite web}}: Check date values in: |date= (help)
  23. ^ "Poundland's chief tells how the bargain brand has forced the big names on the high street to take notice". Scotsman.com. 7 June, 2009. Retrieved 2009-08-30. {{cite web}}: Check date values in: |date= (help)
  24. ^ a b "Poundland chooses EPoS system to enhance stock management and planning". Epson. August 2004. Retrieved 2009-08-30.
  25. ^ "Poundland is trialling contactless payment technology at two of its London stores". Retail Week. 12 August, 2009. Retrieved 2009-08-30. {{cite web}}: Check date values in: |date= (help)
  26. ^ a b c "Poundland to widen base by selling online". Retail Week. 15 October 2008. Retrieved 2008-10-19.
  27. ^ "UK's Poundland to Triple Number of Stores". Licensing Expo. 6 August, 2009. Retrieved 2009-08-30. {{cite web}}: Check date values in: |date= (help)
  28. ^ a b c d e "How Britain fell in love with Poundland". The Guardian. 4 August, 2009. Retrieved 2009-08-28. {{cite web}}: Check date values in: |date= (help)
  29. ^ a b "Poundland unveils plan for international debut". Retail Week. 25 October 2007.
  30. ^ "Poundland says food and drink flying off shelves". The Grocer. 9 May, 2009. Retrieved 2009-09-20. {{cite web}}: Check date values in: |date= (help)
  31. ^ "Champagne corks to pop for Preston Poundland". The Citizen. 25 August 2008.
  32. ^ "Poundland and other cheap stores thrive in recession and credit crunch". The Mirror. 5 April, 2009. Retrieved 2009-08-30. {{cite web}}: Check date values in: |date= (help)
  33. ^ "Poundland - New Stores". Poundland.
  34. ^ a b "Penny drops for Poundland expansion". Propertyweek.com. 26 June 2008. Retrieved 2008-09-21.
  35. ^ "Poundland's expansion plans and the quest for quality". 1 May, 2004. Retrieved 2009-09-20. {{cite web}}: Check date values in: |date= (help)
  36. ^ "Corrie star to open 200th Poundland". Digital Spy. 26 November, 2008. Retrieved 2008-11-27. {{cite web}}: Check date values in: |date= (help)
  37. ^ "The story of Poundland - the land the credit crunch forgot". The Mirror. 8 October 2008. Retrieved 2008-10-11.
  38. ^ "Poundland Blog - Fight Inflation". Poundland.
  39. ^ "The Profits of Gloom". BBC News. 6 June 2008. Retrieved 2008-08-31.
  40. ^ "Crisis? What Crisis? - The 10 retailers defying the gloom". The Independent. 1 July 2008. Retrieved 2008-08-31.
  41. ^ "99p Stores considers sale or float as it maps out rapid expansion". Retail Week. 28 August, 2009. Retrieved 2009-08-31. {{cite web}}: Check date values in: |date= (help)
  42. ^ "Toy and Model Shops UK - Poundland Portfolio Analysis". Toy and Model Shops.
  43. ^ "Row over Poundland Polo mint imports". Daily Mirror. 7 March 2008. Retrieved 2008-04-15.
  44. ^ "Witch hats recalled by Poundland". BBC News. 30 October, 2008. Retrieved 2008-11-01. {{cite web}}: Check date values in: |date= (help)
  45. ^ "Blocked fire exits a, recurring problem in your workplace?". Highfield. Retrieved 2008-03-05.
  46. ^ "Unsafe Racking And Blocked Access Routes Cost Retailer". SHP Magazine. September 2005. Retrieved 2008-03-05.
  47. ^ "Poundland Online Reviews". CIAO.


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