Poundland is aiming to be quids in for years to come

The store is confident its strategy remains sound as it eyes an £800m float

City bankers will soon be asked to invest in a store that most of them have never set foot in in their lives.

Despite that, bosses at Poundland are convinced the single price point retailer has the potential to be worth up to £800m when it lists on the stock market early next year. JP Morgan and Credit Suisse have been appointed to scout out investors, and the Poundland chairman, Andrew Higginson, is wooing City friends he made during his time as Tesco’s chief financial officer.

Some might ask how long Poundland can remain at a single price point, and will there not become a point when a renaming to Two-Pound Land or even Five-Pound Land might be needed?

The chief executive Jim McCarthy thinks not, and believes the £1 price point, which has been in place since it launched in 1990 can remain for decades to come.

He said: “We’ve been around for 23 years at £1 and can certainly stay there for many more years. Look at the US, where Dollar Tree has been trading for 50 years selling everything at a dollar since day one.”

Indeed, Dollar Tree, which started in 1953, continues to trade well in the US and Canada. With more than 4,500 stores, a turnover of $7.4bn and a profit of $619.3m, it nestles in the Fortune 500 list of the biggest US companies.

It listed successfully on Nasdaq in 1995, and shares hit an all-time high two weeks ago.

Poundland’s ambitions to list could  be coming at a good time, with several successful listings in recent months, most notably Merlin Entertainment in the UK and Twitter in the US.

But how can Poundland keep prices at the same level? Bosses explain that while 10 years ago, customers could buy 10 chocolate bars for £1, they will now only get four for the same price. Five years ago, £1 could buy you 45 pencils, but now you might get 10.

Sometimes entire brands will be removed from shelves to make way for cheaper alternatives. A few years ago, the cost of instant Nescafé became so expensive for the company it was making a loss. Nescafé was discarded, and replaced by Maxwell House in a new sized pot on which Poundland could make the margins it wanted.

Mr McCarthy explained: “When commodity prices impact on products we sell as multipacks, then we consider reducing the number of items in the pack, but this is always done against a background of value differential.  If we weren’t able to offer outstanding value then we would delist the product from our range.”

This close relationship with suppliers is key to the company’s success, and as the value of £1 falls, management are in constant discussions on how to reduce sizes and redesign entire brands so they can fit in with the price point.

Suppliers are happy to co-operate as pound stores continue to be successful and as expansion takes hold – Poundland wants to double its portfolio to 1,000 – the retailers’ power continues to grow.

Analysts believe Poundland in particular has the potential to grow faster than its rivals thanks to its dominant position and the savvy way management have quickly moved into some of the stores left empty by administrations including Woolworths and Peacocks.

Fears that sales could be lost when the downturn ends have also consistently been allayed by Mr McCarthy, who points out the strongest growth the company achieved was before the 2008 financial crash.

Last year, its 450 stores recorded a 14.6 per cent jump in profits to £323.4m in the year to end of March, with sales up 15 per cent to £880m, with 4.5m customers a week. Shore Capital expects sales to pass £1bn next year, with profits up to £378m.

The company also has Europe to play with, thanks to its international arm Dealz, which operates in Ireland and is set for expansion on to the Continent. Unlike Poundland, Dealz had the foresight to be launched with multiple price points, which could keep the business running for years to come.

Making the pennies count

Coca-Cola

Previously sold 4 cans for £1

Now 3 for £1

Dairy Milk

Previously sold 150g bars

Now sells 120g bars and introduced own-label bars

Coffee

Previously sold Nescafé

Now sells Maxwell House

Sugar

Previously sold 1.5kg bags

Now sells 1kg

Disposable paper cups

Previously sold 80

Now sells 60

Wooden coat-hangers

Previously sold 3-pack of grade B wooden hangers

Now sells 2-pack grade A wooden hangers

Items now sold due to inflation:

Argan hair oil (50ml) – typical value is £3

Mini 4-pack of hair clips (typical value in Claire’s £4.50 for 6).

Milk Tray 95g exclusive to Poundland

Healthy snacking bags including pumpkin seeds and chocolate-covered cranberries

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

£16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

Day In a Page

Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones