May 21 2013
How Poundland became high street phenomenon with profits of ?20m
There was a customer at Poundland recently who slapped ten pairs of reading glasses on the checkout along with a ?10 note and walked out of the store a very happy man indeed.
The reason for the bulk buy, he told staff, was because he was sick and tired of losing his glasses. he planned to stash a pair in every room of his house, saving him, he calculated, half-an-hour’s ranting, accusing and cushion-throwing a day. That’s three-and-a-half hours a week, 14 hours a month, 168 hours a year. One full week of stress and possibly even his marriage saved, all for a tenner.
Stories like this delight Poundland’s chief executive Jim McCarthy. he is passionate about the store he has headed for the past four years and the quite incredible bargains – and (let’s be blunt about it) inexplicably alluring tat – it manages to pull out of its bag of tricks each week, for enormous profit.
Winning formula: Poundland’s chief executive Jim McCarthy (pictured) puts the store’s success down to maths, timing and good business practice
For the uninitiated, Poundland is the bargain discount store that has appeared, seemingly overnight sometimes, on High Streets and shopping malls everywhere – filling the hole left by the collapse of Woolworths in 2008. The chain is actually in its 20th year, and boasts 299 stores throughout the UK with many more planned – much to the annoyance of some snobby town councils.
Poundland, which claims to have converted many middle – class dissenters, is the shop where everything costs ?1 no matter what the item, shape or size, making it an adventure playground for bargain-hunters and hoarders.
A 300ml bottle of Johnson’s Baby Oil; 20 washing-up scourers; four jumbo car sponges; a box of Terry’s Twilight chocolates; an eight-pack box of Bakewell tarts; a 290g tin of Heinz chicken soup; a 12-pack of Kodak batteries; a 125ml tube of Colgate toothpaste; a JLS poster and Elton John’s biography all under one roof – and all yours for ?1 each.
It’s also the store that this year, while the recession was still wreaking mayhem and devastation in Britain’s High Streets, boasted pre-tax profits of ?19.8 million – up from ?8.6 million in the previous year – thanks to three million customers each week and the pound coins burning a hole in their pockets.
But, of course, the question on everyone’s lips is how on earth does Poundland do it? I mean, reading glasses for ?1? The last time I visited the optician, it cost me ?200. Surely they must be shoddy rubbish, guaranteed to fall apart the second you leave the store?
Huge success: Poundland has boasted pre-tax profits of ?19.8 million
Apparently not. mr McCarthy, a genial 54-year-old, whose 35 years in the retail industry – including a spell on the boards at Sainsbury’s and next – have made him a significantly wealthy man, professes to have a pair of those very specs on his bedside table.
‘They do the job,’ he laughs. ‘I picked them up in store one day several years ago when I’d left mine at home. I thought they looked quite snazzy until my wife pointed out they were actually ladies’ glasses, but they’re fine.’
So where do these incredible deals come from? Who in the world is able to produce, ethically, a pair of functioning, UK prescription-complying glasses for considerably less than ?1, and still make a profit?
And, for that matter, how does Poundland persuade brand giants such as Colgate, Heinz, Kellogg’s, Johnson & Johnson and Cadbury, all of which feature prominently on its shelves, to sell them their goods at far lower prices than they do other retailers?
Alas, if Jim gave me the full, inside story he’d probably have to kill me, but he does reveal that there’s no mystery, no magic – it is simply a matter of maths, timing and good business practice.
‘We’re probably the busiest store on the High Street,’ he says. He’s not kidding: Saturday afternoons in Poundland attract the kind of crowds normally reserved for the first day of the January sales. ‘So we’re talking the kind of volumes that manufacturers are interested in.’
He explains: ‘We are famous for making quick decisions and, importantly, we have an enviable reputation for paying quickly.
‘A supplier, such as Cadbury, could come to us on a Monday with a cancelled order of a few million units of something. They would get an answer on the same day, probably at the same meeting. by Friday, the stock would be sold and their invoice paid in full. If you want something shifted, Poundland is the place to do it.’
Poundland’s evident success in tapping into shoppers’ inner frugalitycertainly appears to have put the wind up a few other retailers
A deal currently flying out of the stores is a batch of several million boxes of After eight mints. The manufacturer, Nestl?, is due to change the box weight from 200g to 170g after Christmas, and needs to clear its stock of the old size. ‘There are 21 mints in each pack and we’re selling them for ?1, so that’s less than 5p a mint. How brilliant is that?!’ says Jim, barely able to contain his excitement.
Poundland’s evident success in tapping into shoppers’ inner frugality certainly appears to have put the wind up a few other retailers, not that they would ever admit it, of course.
Rival major stores, including Tesco, have recently launched heavily promoted ranges of goods selling at ?1. and is it purely coincidence that Sainsbury’s slashed the price of its 300g box of After Eights by half last week? Jim thinks not. and before anyone jumps to the conclusion that the chocolates are bound to be on the stale side, Jim hotly contends that while that reputation may be deserved by some other, copycat, single-price outlets, the goods in Poundland are as fresh as those found in the aisles of Waitrose and Tesco.
‘If you look on the box, the sell-by date is probably going to be September or October 2011, which makes it really fresh stock. our ?products come from the same factories as everyone else’s.
In many cases, it’s actually fresher because we get it onto the shelves first.’
Although these famous one-off deals are what have made Poundland famous, there are more than 1,000 brand names stocked regularly among the 3,000 different items sold in stores each week, most of which are the result of a special deal struck with the manufacturers.
Companies have a sliding scale of prices according to the volume a retailer orders. because Poundland can shift such huge numbers of goods, it can purchase at the ?lowest possible prices.
But what it also does is to take less profit — which is why the manufacturers are falling over themselves to trade with Poundland.
Some deals are tailor-made for the store, just so it can keep to its ?1-an-item pledge.
Jim gives an example: ‘We saw that sugar was being sold by supermarkets for 93p per kilo. We couldn’t sell a 1kg bag for a ?1 and offer good value, so my challenge was to source a 1.5kg bag.
‘We had to promise the supplier, Whitworths, we’d order at least 500 tonnes of sugar a year in order to persuade them to make this special pack for us. and we are selling far more than that. It’s one of our bestsellers.’
Of its 700 suppliers, two-thirds are UK-based, the others spanning the world, from China to Israel to the Netherlands, all vying to offer Poundland the best deal from goods ranging from party ?poppers, Halloween masks, flower bulbs, gift wrap, plastic plates and beakers. The reading glasses come from China.
Poundland even has a Hong Kong office, which uses agents to spot trends in the overseas market and make swift deals on the company’s behalf with foreign suppliers.
Unfortunately, as Poundland ?discovered, when shops stock goods from developing countries, child exploitation can be involved. in July, a seven-year-old boy was found to be working 100 hours a week in an Indian sweatshop, earning just 7p an hour making napkin rings destined for the store.
Jim agrees this is unacceptable. ‘It was a new supplier, which had been visited and provided with our code of conduct and rules, but had outsourced the work, which we’d prohibited in our ?agreement,’ he says.
‘It was brought to our attention, we investigated and cancelled our order. We face the same difficulties and challenges as companies such as Gap, M&S, Primark and ?Mothercare, none of whom would ever knowingly deal with suppliers that exploit ?people and break the law. But in all of these dealings there is an element of trust and relying on people to tell the truth. We can only do our best.’
The sad truth is that stories like this won’t deter the average British bargain-hunter. But who is the Poundland shopper? Are they really bridging the class divide as they claim and appealing to cash-strapped and cash-rich alike?
Looking around the aisles at Poundland in Croydon, South ?London, I can definitely spot some well-to-do customers.
Jim winces at the word ‘posh’, preferring to use more in-house retail terminology. ‘We are attracting more AB ?shoppers, certainly,’ he says (explanation: if people were ranked A to E according to their profession and buying power, a judge would be an A and a poor pensioner an E).
‘Bargains have become almost a badge of honour among the higher-wage earners nowadays,’ says Jim.
‘I am old enough to remember ?dinner parties where people would talk about how much the value of their house had gone up that week. Nowadays, they’re talking about the deals and bargains they’ve found. I like to think they’re boasting about paying only ?1 for the After Eights being passed around.
‘Extravagance is history — everyone is interested in saving money, from the Government to the individual — and we should all be proud as ?consumers every time we are able to buy something for less.’
So is Jim right? have the middle classes really given up trying to keep up with the Joneses in order to pour into Poundland instead?
I’m not so sure, but since I’m here I may as well grab a basket and a bargain. I’m not a regular visitor to ?Poundland, and it’s certainly an Aladdin’s cave of curiosities.
On a weekday afternoon I rub shoulders with teenagers, mums and pensioners buying everything from tea bags to school pencils. despite the giant ‘Everything a pound’ signs everywhere, I still hear a little old lady asking how much a tin of biscuits costs. indeed, ‘how much is this?’ is the most frequently asked question at Poundland.
I leave with a 12-pack of batteries (good for the smoke detectors), some sponge scourers, a Toblerone and a Halloween ghost with spooky colour changes (no, I don’t know why either).
I’m pleased with my purchases and I still have change from a fiver — but, if I’m honest, I doubt I’ll be bragging about it at any dinner parties.
How Poundland became high street phenomenon with profits of ?20m
Press Release Source: Mangelsen’s Direct On Tuesday August 31, 2010, 8:25 am EDT
