'Welcome to Poundland, Everything's 97p': Austerity price war as low-cost retailer cuts prices to undermine 99p rivals

Chain reduces prices in stores at risk from nearby competition

97p Land: the bargain store has slashed its prices by 3p (Rex)

The streets of Dudley never were paved with gold, but they may soon be littered with coppers.

One would think it might be perilous practice to start undercutting one's rivals, in a business which rests on every product being priced eponymously, but such is the length to which Poundland has gone to reclaim this rather downmarket West Midlands High Street.

Ominously over the road sits the 99p Store. The passing shopper might imagine it is the cheaper option, but they’d be wrong.

“Welcome to Poundland, Everything’s 97p,” reads a big sign hastily placed outside the front door. Customers are filing through the tills seemingly a little slower than usual, little handfuls of change pressed in their palms, a novel experience.

“They’ll have to rename it won’t they,” says 21 year old Jack Smith, emerging with a bag full of lighter refill gas. “97p land. Don’t sound the same does is it?”

Jim McCarthy, the Poundland chief executive, says his 400 shops will not suffer such an ignominious fate, but the Dudley store is one of three of Poundland’s 400 that has taken this seemingly drastic step. “It’s part of our competitive response — it’s not about rebranding,” he told industry magazine Retail Week. The 3p price slash, he maintains, is anything but a gimmick. “People notice,” he said. “They notice everything on value.”

Except in Dudley, for the most part, they don’t.

“Well you don’t notice, do you,” says pensioner Doreen Harris, the new owner of a large bag of wet-wipes and some ‘bits for the grandkids.’ “I’ve never been in that one over there,” I always just come here.”

Leila Turner, in her 30s, is even more extravagant. “I wouldn’t cross the road to save less than a couple of quid,” she says. “I just came in here, because, you know, I just came in here. I didn’t notice it was any cheaper.”

Although not everyone agrees. “Yes, you do notice that saving, look at all these” says Susan Harris. Here eight bursting bags of groceries would be weighing her down, if any of them contained any other than plastic cups for her husband’s 60th birthday party. “Each of one of these stacks, that’s a quid, so that’s 3p on all of them. That’s a real saving.”

The discount hasn’t escaped Lucy Ellis either, wheeling out her pram, several discount cartons of Robinson’s Fruit Shoot hanging off the handlebars. “It’s gone up. It was 95p last week.” (This is true, Mr McCarthy admits. WHen the discount was first introduced three weeks ago, it was bigger, and has since gone up).

Hussein Lalani, the co-founder of 99p Stores, and the other protagonist in this Coke/Pepsi style corporate slugfest has already sent a case of “99p bubbly” to Mr McCarthy, to ‘thank him for the compliment’ of cutting his prices, though its dual purpose as a PR exercise won’t have been lost on him. “It illustrates what an impact we must be having on Poundland that they have had to change their business model,” he said.

Dudley’s shoppers can see why Poundland might be nervous. “I only get cleaning stuff from Poundland,” says 16-year-old Sasha Parks. "Over there’s much nicer, for food and that." It’s hard to disagree. In fact Mr Lalani may even be relishing his new found status at the High Street’s more reassuringly expensive budget option. Head massagers, imitation leather belts, even Lawrence Dallaglio’s Pasta Sauces - once the preserve of fancy-dan Waitrose on their launch four years-ago - are all available for, 99p. In the books section, Tinie Tempah’s autobiography’s inside cover claims its RRP is £14.99. Not anymore.

Pound Shops and their like are about the only high street businesses that are booming, and the competition is fierce. Poundlands, Poundworld and now 99p Stores are rapidly moving into the vacant lots that keep appearing. Many have quite literally filled the gap in the market left vacant by Woolworths. In 2009, a pound shop in Bournemouth was forced to close after a 99p store opened opposite. A 3p saving might seem a little comical to a customer, but for the shop, that’s a potential 3 per cent cut in revenues - no laughing matter.

The US PRivate Equity firm Warburg Pincus, who bought Poundland for around £200m three years ago, may sell it later this year for as much as £600m, which represents a vast profit on a chain of stores where British unemployment benefit claimants were controversially told to provide free labour by the government or risk losing their benefits. One such individual, Cat Reilly, successfully sued the department for Work and Pensions over the legality of the claim, a course of action which the Secretary of State Iain Duncan Smith described as “sneering at hardworking taxpayers.”

But in any case, the march of the pound shop shows no signs of slowly. One of Poundland’s other three now 97p establishments is in East Ham, just down the road from where Muhammad Nazir became something of an unlikely star at Queen’s Road Market, singing his “One Pound Fish” song, which nearly made it to Christmas number one. If the discount war really takes hold, watch out, he may yet return with a rather more wordy follow up this year.