Poundland nation: Britain's middle classes flock to discount chain
Firm says it wants more shops than Sainsbury’s as it plans stock market flotation
Tuesday 18 February 2014
The dominance of discount chains on Britain’s high streets has moved a step closer as Poundland said it wants to have more UK stores than Sainsbury’s and Starbucks, revealing plans to join the stock market with as value of around £700m.
The firm’s management said it wants 1,000 stores across the UK, doubling the current 500 sites, and added that the middle-class stigma previously attached to the brand has come to an end – with more than one in five of its shoppers now in the top socio-demographic band. Five years ago it was only one in 10.
Retail experts and economists believe the plans by Poundland show a permanent shift in the shopping habits and confirm discount retailers as the big winners from the recession, with its rival B&M Bargains also eyeing up a stock market floatation.
Poundland’s chief executive Jim McCarthy, who will pocket several million pounds from the listing, said: “The value retail sector has been through a period of profound change in scale, customer perception and financial performance. The sector is now a mainstream feature of the UK retail market and Poundland has been a central architect of that change.”
With wages failing to rise in real terms for at least four years, shoppers have felt the pinch and are turning to cheaper retailers.
Matthew Whittaker, senior economist for the Resolution Foundation, explained that income for a typical household has fallen by more than 5 per cent between 2008 and 2012 and is not expected to rise again for at least another year.
He added: “We are still feeling the effects of an unprecedented squeeze on living standards which has seen falling wages and a rising cost of food and other essential items. Given these pressures, many households are making tough choices about how and where to spend their limited disposable income.
“This is unlikely to change until we see a sustained rise in wages.”
Poundland has benefited from the recession, with a rapid expansion seeing stores go from just over 200 five years ago to nearly 500 today. During that time, sales have jumped from £400m in 2008 to £758m in just the nine months to December 2013, and bosses now want to expand into Europe, with 10 stores in Spain already due to open.
Bill Grimsey, former chief executive of Iceland and author of a report into the state of Britain’s high streets, explained: “I think the economic conditions are causing the likes of Poundland and B&M Bargains to transcend socio-economic groups. You’re getting middle-class punters because of the squeeze they have had on disposable incomes, which has led to their success.”
He added that many of the traditional retailers had failed to keep up with the pace of change and that the discounters had managed to win over customers from the likes of Tesco and Morrisons.
Poundland opened its first store in 1990 in Burton-on-Trent and slowly expanded, replacing many of the independently run discount stores. Graham Soult, a retail consultant at CannyInsights, revealed that Poundland took advantage of Woolworths’ collapse, with 93 of its stores located on former sites of the now defunct retailer. Iceland is second with 69 stores, with 99p Stores taking 60 sites and B&M Bargains 54.
He said: “It’s an incredible transformation when you think back to how pound shops were perceived 10 years ago. The growth is coming from ABC1s, which is why you see stores in upmarket towns and shopping centres. By starting to offer quite a nice shopping experience, it has managed to overcome the snob factor of people saying they wouldn’t be seen dead in them.”
Landlords are now welcoming the high footfall offered by discounters and see them as a way to get more shoppers to the high street. Margins at Poundland are also as high as 38 per cent, far higher than supermarkets.
Bryan Roberts, retail insights director at Kantar Retail, explained the appeal of discount shops over supermarkets, saying the latter had too many complex deals for customers to be sure of getting value for money: “People are short on time and want to know instantly whether they are getting a good deal, and pound stores are superb for that.”
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