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
Previously sold 4 cans for £1
Now 3 for £1
Previously sold 150g bars
Now sells 120g bars and introduced own-label bars
Previously sold Nescafé
Now sells Maxwell House
Previously sold 1.5kg bags
Now sells 1kg
Disposable paper cups
Previously sold 80
Now sells 60
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