Pound shops take over the high street

Poundland’s swoop for rival 99p Stores means the march of the discounters is set to continue. Simon Neville reports on a retail phenomenon

Poundland competes in many fields, from food to DIY, making it hard for regulators to define (PA)

Poundland has pulled off another coup, agreeing to snap up its rival 99p Stores for a cool £55m. The discounter’s quest to stamp its mark on every high street in Britain continues apace.

The takeover means Poundland will have around 750 outlets, giving it a bigger high- street presence than Starbucks and WH Smith. It is now recognised as one of the biggest retails winners of the recession that began in 2008.

But how did Poundland manage to take the crown as a discount victor? Which businesses have suffered as a result? And could the Competition and Markets Authority put a stop to the deal, or force the Midlands-based business to slim down?

The Poundland chief executive Jim McCarthy is bullish on the competition point. He believes there should be no problem with the deal going through and insists there is space on high streets for two or even three Poundlands within a few hundred yards of each other.

He told The Independent: “If you look at Tesco and Sainsbury’s, they already have very high density of Expresses and Locals. You think ‘crikey there are a lot of those’, but they seem to pick up different customers even within a short distance, depending on where train stations and bus stops are.”

In Brixton, south London, for example, there is currently a Poundland directly opposite the Tube station, and a 99p Store a few hundred metres further down the high street.

Mr McCarthy said: “In Brixton both stores are profitable and cater to different parts of the community there, so there’s nothing stopping us from keeping both stores open. If the supermarkets can do it, why can’t we?”

Another issue that may be on the minds of investigators is what exactly Poundland should be classed as – as it competes in so many different fields: food, drink, cosmetics, books, stationery and DIY.

David Stoddart, retail analyst at Edison Investment Research, said: “It poses an interesting question for the competition authorities about how to define the market. If they define it narrowly as ‘pound shops’, the deal could be at risk. If they define it widely as ‘general goods stores’, there is less of an issue.”

Inevitably some stores will close, but regardless of how many, Poundland is now firmly established on British high streets.

The first big spurt of growth came during the recession, with retailers including HMV, Comet, Clinton Cards and Game all going to the wall. Poundland took up much of the empty space available.

Hard-pressed shoppers were keen on a bargain and turned to the retailer in droves. But even following the relative recovery, and unlike after previous recessions, shoppers’ love affair with the discounters continued.

The supermarkets have felt the biggest impact, as the rise and rise of Aldi and Lidl has led to the big four grocers all losing out and scrabbling around in a price war to win back shoppers. Most bosses agree that the change has been permanent, not cyclical.

Mr McCarthy explained: “I think it’s irresistible. In the previous recession, if you needed to shop for value then you couldn’t because online wasn’t developed and there were only a handful of bricks- and-mortar discounters.

“Now if you want to shop for value, you can use a number of different channels. Even though there has been an uptick from the recession, people are very aware they can make their money go further.”

And, as with the discounters Aldi and Lidl, it is middle-class shoppers who are making the difference, with 53 per cent of Poundland shoppers in the ABC1 social category, according to surveys, and 22 per cent coming from the top AB category.

This trend has been accentuated by the introduction of new cosmetics, baking products, DIY kits and big-name brands on the discount shelves, selling at a far cheaper price than those stocked in supermarkets or chemists.

Mr McCarthy has already said he wants to see 1,000 Poundlands across the country, and is well on the way to getting there with yesterday’s deal, which involves a £47.5m cash payment to 99p Stores and £7.5m in shares.

But another question raised by retail analysts is that with Poundland cementing its dominant position on the high street, what will happen to the vacant sites?

Mr Stoddart at Edison said: “It raises another question mark over the future of the high street. In recent years, the pound shops have been among the few operators expanding into vacant high- street units.

“One fewer ‘pound shop’ operator means more empty units and, other things being equal, an earlier death for some marginal high streets.”

Even so, Poundland’s £1 price is here to stay and, as Mr McCarthy points out, Dollar Tree in the US, America’s equivalent, has been running for more than 50 years.

Poundland is only 25 years old, so, by that measure, it has plenty of time to go. Shareholders certainly seemed to think so too as its shares closed up 55.2p at 413p yesterday. Now it’s over to the high-street bargain hunters.

Pound for pound: The major players

Poundland

Founded in 1990, the king of the pound shops has 500 stores and sells under the Dealz brand in Ireland and Spain. Recently joined the stock market with a valuation of £750m, with shares jumping almost 30 per cent.

Poundworld

Founded in 2004 by father-son team Chris Edwards Sr. and Chris Edwards Jr, it has 270 stores. Launched online with Poundland founder Steve Smith last year but left the joint venture after six months.

Poundstretcher

One of the oldest single-priced retailers, it was founded in 1981 and has 400 stores. Rebranded as …Instore but changed back to Poundstretcher in 2006.

B&M Bargains

Also recently listed, it was founded in 1978 in Blackpool. It has 400 stores, taking over many former Woolworths, Kwik Save and Focus DIY stores. Former Tesco man Sir Terry Leahy is chairman.

Home Bargains

The company wants 700 stores in the next five years and to expand outside its native Merseyside region. It currently has 370 stores and is part of family-run TJ Morris.