Poundland

Poundland Limited

Type	Private limited company
Industry	Retail
Founded	April 1990
Founder	Dave Dodd and Steven Smith
Headquarters	Willenhall, West Midlands, United Kingdom
Number of locations	800+[1]
Key people	Kevin O'Byrne (CEO)
Products	Groceries, consumer goods, DIY, electrical
Revenue	£997.8 million (2014)[2]
Operating income	£40.0 million (2014)[2]
Profit	£13.9 million (2014)[2]
Owner	Steinhoff International
Number of employees	10,020 (2012)[3]
Website	www.poundland.co.uk

Poundland^[4] is a British variety store chain, listed on the London Stock Exchange, that sells most items in its stores for £1.^[5] Established in April 1990 by Dave Dodd and Stephen Smith, Poundland stock about 3,000^[6] home and kitchenware, gift, healthcare and other products, across 16 categories many of which are brand name and clearance products. Like many of its rivals, Poundland operates a constantly rotating product line with all products priced £1.

Although price-point retailing and psychological pricing were invented in the United States during the 1870s, the chain claims to have introduced this concept to Europe^[7] and is the largest single-price discount retailer in Europe.^[8] The retailer claims that their Croydon store is the busiest single-priced discount 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 US respectively.^[6] The company estimated in 2010 that it served 2.75 million customers in an average week.^[9]

Poundland were reported in 2008 to have had strong sales growth and have maintained steady profit growth against increasing inflation. This, among other factors, was aided by a strong customer base of predominantly female shoppers every week in the C1, C2, D and E categories^[10] (the working classes in a system of demographic classification used in the United Kingdom). The chain employs 10,020 staff and their company union is the Union of Shop, Distributive and Allied Workers (USDAW).

In 2015 Poundland acquired rival 99p Stores, leaving Poundworld as their closest competitor. In 2016 the company was described as "struggling" after its acquisition of 99p Stores. Before the purchase its share price had been 350p; it dropped to 150p, and the company was purchased in August 2016 by Steinhoff for £610m, 227p per share.^[11]

History

Formation

Claiming to have introduced the concept of single-price retailing, Dave Dodd and Stephen Smith founded the retail chain in April 1990^[5] with a starting capital of just £50,000.^[12]

The first pilot store opened in December 1990 in the Octagon Centre, Burton upon Trent, after being turned down by big landlords who had reservations about allowing such a store to operate,^[12] 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 six stores by December 1991 and a further seven a year later. In 1995, Smith failed to plan for more warehouse space, and retail growth pushed their storage capacity past its limits. In the same year, stock theft reached an unacceptable high. In response, a new 130,000-square-foot (12,000 m²) warehouse was built, although at a cost of heavy profit losses, from £850,000 in 1994, to £400,000 in 1995.^[12] 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 multimillion-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.^[10] Following a management buy-out in 2002, the company has continued to grow with annual profit growth of 23.44% (2007)^[7] 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".^[13]

Poundland operate a recycling initiative through which they will give money for old mobile phones, while at the same time making charitable contributions and helping the environment.^[14]

Late-2000s economic crisis

Poundland, unlike many of its rivals, have reported 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 has not been totally immune to the recession. The retailer has been forced to close down stores that are not 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.^[15] 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.^[8]

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.^[16]

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.^[17] 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] The retailer had a good start into 2010 when they announced they had seen a surge in sales by nearly 35% over the 2009-2010 festive period.^[9]

Reports emerged in September 2008 that Poundland's owners, Advent International, were to put the retail chain up for sale, with figures showing that value retailers are seeing business boom in the current economic climate.^[18] These plans were confirmed in March 2010, when it was reported that Barclays Private Equity has expressed an interest in a potential take-over of Poundland for about £200m, although given that Poundland is on track to increase its turnover and profit in the 2009-2010 financial year, a higher price tag is possible. Advent originally bought Poundland in 2002 for £50 million and are reported to have hired Close Brothers to advise on its strategic options.^[19]

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,^[7] 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.^[20] 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,^[21] 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.^[22]

Recent history

It was announced in September 2008 that Poundland's owners, Advent International, were planning on cashing in on the resurgence in value retailers by preparing to put the chain up for sale. The report came as figures showed that value retailers were seeing a business boom in the current economic climate.^[18] These plans were confirmed in March 2010, when it was reported that Barclays Private Equity had expressed an interest in a potential take-over of Poundland for about £200 million.^[19] On Tuesday 4 May 2010, it was announced that Poundland had been sold to US private equity firm Warburg Pincus for £200 million.^[23]

In March 2014 the company was the subject of an Initial Public Offering.^[24]

The company acquired 99p Stores in 2015, which was followed by a drop in its share price from 350p to 150p; in August 2016 the now-struggling Poundland was sold to the South African company Steinhoff International for £610 million.^[11] Poundland's shareholders approved the takeover in September 2016.^[25] The business has converted the 99p Stores under the Poundland brand, while introducing Poundland Plus as new brand in the former Family Bargain stores which had been owned by 99p Stores.^[26]

Business practice

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.^[27] 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 Bellshill.^[27]

Sales strategy

Poundland promotes their sales strategy through their slogan: "Yes, Everything's £1!".^[12] By having a set price for all of their stock, the company avoids the need to transmit pricing information to each store as well as the need to associate individual price tags with each item.^[28] Although the retailer encountered apprehension from some manufacturers worried about selling their brands in a discount environment, the store offers the alternative of selling the products under their own in-house brand.^[28] Running a store in which prices do not change presents challenges, particularly with inflation, as it would be difficult to change all the signs to read, for example, "everything is £1.05"; however, inflation has also meant that some products which used to have an RRP below £1 (and were thus cheaper to buy at other stores) have increased in price and can now be sold for £1 while still offering customers value.^[29] One other way the company deals with inflation is to decrease the amount of an item sold for £1: e.g. if the company is selling a number of pencils as a set, this number could be reduced to account for changes in inflation.^[29] 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.^[30] 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).^[31] 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.^[31] 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.^[32]

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.^[33] However, CEO James McCarthy said he had decided to postpone plans for transactional web site indefinitely, to concentrate on opening new stores.^[34]

Products offered

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.^[35]

Until recently, all unbranded products stocked by Poundland, which account for roughly 70% of total stock,^[10] would carry the Poundland branding and logo. However, the retailer has found that they could 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 1000 branded products,^[6] the majority being food and drink,^[36] 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".^[33] In 2003, The Grocer reported that approximately 400 of the chain's 2000 stock-keeping units (SKUs) are in impulse and grocery lines.^[28] Food products now account for 14 per cent of store space and 28 per cent of revenue,^[33] 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.^[37]

In October 2009, Poundland launched their own range of bagged sweets branded "Sweet Heaven", in a bid to help fill a gap left by the demise of Woolworths. The range will include a number of products that used to be found in Woolworths's Pick n Mix selection.^[38] As well as their in-house brand line, the retailer also sells hundreds of products from other top brands such as Colgate, Walkers and Cadburys.^[39] Poundland is Britain's largest seller of batteries, stocking reputable brands such as Sony, Panasonic and Kodak in quantities priced more competitively than their closest rivals,^[35] with their Kodak AA batteries being one of their best selling items in 2009.^[40] Some of the products sold under the in-house brand are supplied by manufacturers who are worried about their brand being sold in discount stores and would rather allow their products to sell without their own branding attached.^[12] Poundland often sells 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.^[12]

Store expansion

From 2000 until 2003 growth of the company was slow but steady. In 2003 Poundland almost doubled their number of stores over the 3-year period to 2006, from 80 to 150. Growth then slowed again until early 2008 when the retailer took advantage of the economic downturn to further expand at an average rate of 3.7 new stores a month, from February 2008 to September 2009. Poundland plan to increase the average store size by 25% to around 7,000 square feet (650 m²), comprising around 5,000 square feet (460 m²) of sales space.^[41] 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."^[41]

As of 2015, Poundland's UK and Ireland stores average 5,233 square feet (490 m²), and typically range from 1,700 square feet (160 m²) to 12,000 square feet (1,100 m²)^[42] such as the 12,200 square feet (1,100 m²) store in Cheltenham.^[43]

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 properties to 650 stores.^[36] The retailer reached their first milestone in May 2004 with their 100th store opening in Merry Hill Shopping Centre, Dudley,^[44] and on 27 November 2008, the company opened their 200th store.^[45] The retailer expanded into Northern Ireland and opened 6 stores there before Christmas 2009, selling locally sourced goods such as milk as well as their usual branded products.^[8] The company also celebrated a milestone when their 250th store opening on 21 November 2009 and had planned for another 17 before Christmas 2009.^[46] The retailer plans to spend around £10 million to open at least another 50 stores in the 2010–2011 financial year.^[47]

Dealz

On 2 August 2011, Poundland announced that it is going to expand into mainland Europe, under the name Dealz. The first 6 new stores have opened in Republic of Ireland, creating 120 jobs.^[48] A store in the Isle of Man opened in December 2011.^[49] Dealz has also expanded to remote parts of the UK offering Poundland products for £1 and £1.20. In September 2012 a store opened in Kirkwall, Orkney. The name 'Euroland' is not going to be used so it will avoid the impact of price volatility in the region^[50] and as potential customers did not like the name.^[51] Also, a chain store of 45 shops with the name "Euroland" already exists in the Netherlands, making it difficult to use the name.

Instead of everything being the same price, like the current Poundland model, there will be different prices.^[52] As well as offering the Poundland mix of big brands such as Kelloggs, Cadbury's, Maxwell House, Pantene and Kodak, the stores will also sell locally sourced products including milk, eggs and crisps.^[48] 10 July 2014, Poundland recently opened their first store in Torremolinos, Spain under the Dealz España name. There are hopes to open a further 10 stores in Spain in the next financial year.

Customers

Poundland has about 2.75 million customers,^[9] (about 80% female^[35]) every week in the C1, C2, D and E categories.^[10] 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,^[53] and in this regard Poundland began accepting American Express in February 2012. Poundland also attract students and the elderly who typically watch their budgets and look for bargains.^[10]

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.^[10] Poundland's claim to fight inflation by guaranteeing their prices will remain consistent is just one factor in their appeal to a larger customer base.^[54]

An increasing number of households are seeing Poundland as a means to purchase their regular household necessities at a time of financial struggle. Where 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,^[55] with an increasing number of hard-pressed customers visiting its stores for bargains, bulk buying items such as toothpaste and tinned food.^[56]

Competition

Value and discount retailers have seen a boom in sales since the recession at the start of 2009, with several retailers operating with the same strategy as Poundland, such as independent businesses and smaller price-point retail chains such as Poundworld. However, some consolidation has since taken place, with Poundland having purchased 99p Stores, its closest competitor in the sector, during 2015.

Other larger chains have also been hit by the success of discount retailers, with many budget-conscious 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.^[35] 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 stifle 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.^[17] 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 and 173 products had been selling for less than £1 during Spring 2009,^[35] while prices at Poundland have remained fixed since the chain was founded in 1990.

Whilst Poundland's competition will primarily be other value retailers, the retailer may sometimes find they are competing with other retailers' own brand produce. It was reported in May 2010 that Poundland were selling rebranded lotions for £1, exactly the same products that Boots were selling under their own brand for significantly more.^[57] Boots responded to the findings by suggesting that the products available in Poundland stores were likely excess stock they had sold off below cost price which had been destined for overseas markets, with some inadvertently directed into UK distribution without their permission.^[58]

Financial performance

Poundland have seen strong increases in turnover year on year,^[59] helped by an increase of store openings and turbulent economic conditions.

Year ending	Turnover (£m)	Gross profit (£m)	Operating profit (£m)	Pre-tax profit (£m)	Retained profit (£m)
31 March 2014[2]	997.8	368.5	40.0	36.8	13.9
31 March 2013[2]	880.5	323.5	30.1	26.5	23.4
1 April 2012	780.1	288.0	28.2	23.3	17.5
27 March 2011[2]	518.4	190.8	15.7	8.5	5.1
28 March 2010	510[60]			19.8[61]
29 March 2009	396[62]		20[63]	8.6[62]	11.8[64]
30 March 2008	330		15.7[63]	4.2[62]	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 and customer perception

Although the £1 price prevails throughout the stores, some branded products are offered cheaper or with better value at larger supermarket chains, as the price consistency across all product ranges in Poundland creates customer perception of a bargain. For example, two reporters from the Daily Mirror newspaper in November 2009 compared prices for branded products offered at Poundland with the same products offered at larger supermarket stores and found in some cases the larger supermarket stores offered better value for money.^[65]

Reviewers tend to speak positively about the store on many online review sites, but some tend to criticize poor store layout, design and overcrowding, as well as inadequate customer service and staff knowledge.^[66] Despite this, in a survey the retailer conducted in July 2007, 99% of respondents said they would recommend the chain.^[10]

Environmental concerns

In 2008, Poundland infuriated green campaigners by transporting 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's 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 into account transport costs, to ensure it can continue to provide its customers with value for money.^[67] It later emerged that the mints were transported by ship, not by air, so the environmental impact was less significant.^[29]

Health and safety

Although Poundland claim that they strive to provide its customers with good quality products while 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.^[68] In October 2008, the retailer was forced to recall Halloween witch hats, as checks on the item revealed a small number of chemicals classified as unsafe for young children.^[69] Poundland also recalled Marshmallow poles in October 2012 when a customer in Scotland found an entire hacksaw blade in the package. In 2010 Poundland were fined £4000 after a customer suffered injury due to a defective fishing catapult.^[70] Additionally a further fine was received in the same year of £3,500 for selling lighters that produced a flame that caused the device to melt during normal use.^[71]

Aside from potentially unsafe products, Poundland has also been found guilty of blocking fire exits at a cost to the company of £3,000,^[72] as well as also being fined £13,000 in 2005 for unsafe racking in its warehouse.^[73]

In October 2009, the newspaper Newbury Weekly News reported that customers who purchase a miniature keyring knife from Poundland stores are breaking the law as soon as they leave the store. The blade looks like a Stanley-style knife and the law states this makes it illegal to possess in public unless it is for work or religious reasons. The retailer had been highlighted about the problem previously, however continued to sell the item, despite some customers ending up in court and being prosecuted for possession of the item. Poundland spokeswoman Emma Broomhall said these had now been withdrawn from sale in Newbury and across all its stores, however did not address the claim that its customers had been liable for prosecution once they left the store.^[74]

Staff ban on wearing poppies

In response to a news story about a member of staff being sent home for wearing a Remembrance poppy in 2011, Poundland posted a comment on their Facebook and Twitter social media stating "Poundland is not against colleagues wearing a poppy; however, colleagues are not allowed to wear one on the shop-floor simply as it does not abide by the uniform rules.".^[75]

This policy attracted much attention through social media including Facebook and Twitter, and various customer forums.^[76][77]

Poundland backed down from the ban on 31 October 2011,^[78] and released the statement that employees will be allowed to "use their own discretion in wearing poppies" after hundreds of customers threatened to boycott the store.^[79][80]

Back-to-work scheme

In February 2013, Cait Reilly, won her case that her local Jobcentre had breached benefit laws by insisting that she work at Poundland to maintain her unemployment benefit payments. The government had to redraft its legislation on the so-called "sector-based work academy" after losing the case. Reilly called her two weeks working unpaid at Poundland "a complete waste of my time".^[81]

Prosecution for pest infestation

Poundland were previously fined £24,000 following an investigation of a store in Croydon, London. Customer complaints had been received by the local council, and inspectors allegedly found that hygiene was poor, the store had a widespread mouse infestation and that food which had been contaminated by mice chewing open the packaging and leaving droppings and urine inside, were then re-sealed and sold to the public. During the trial Poundland admitted failing to withdraw food unfit for human consumption, not protecting food from contamination, failing to control mice and failing to ensure the store was well maintained and clean. Additionally they admitted to failure to implement and maintain its own food safety management system.^[82]

In June 2015, Poundland were fined £10,000 following an investigation by Islington Council of a store in north London. Evidence of a widespread mouse infestation and that the company had failed to take appropriate action to remedy the situation was presented in court.^[83][84]

See also

• Warburg Pincus
• Advent International
• 99p Stores
• Poundworld
• Pound Shop Wars
• Variety store
• Dollar Tree (US equivalent)
• Dollarama (Canadian equivalent)

References

External links

Wikimedia Commons has media related to Poundland.

• Poundland's official website
• Poundland companies grouped at OpenCorporates