Poundworld - Will Brexit see them come good?

13 February 2017

This service continues it's sideways look at the market by considering single price retailer Poundworld today, there remains so much to consider in the UK retail market - with further complexity added by Brexit too.

The next few emails will consider those in the space who aren't always covered with great vigour - Iceland, Wilko, Booths and even the Co-Operative who get lots of coverage but perhaps not the respect they deserve for the job they're doing in convenience.

Anyway - single price retailers remain a conundrum in our market and post recession seemed to do very well indeed when picking up customers who had enough of high/low promotional retailing and wanted levels of stability when shopping.

The issue with single price is that it becomes easy to defend against, as the big retailers got a grip of themselves; they were able to adjust and nullify pound shops relatively easily. In many cases single price was caught in the crossfire of Tesco et al reducing prices and simplifying their offer to combat food discounters Aldi and Lidl.

Shifts by larger retailers made it difficult for Pound retailers to provide value in a compelling way as the prices across the market came down, it made the single price retailers look poorer value when you considered irregular pack sizes on some lines.

Consolidation was overdue in the market and 99p stores rolled into Poundland, who then rolled GHM! (short lived chain born by Christo Wiese and the Steinhoff empire) into their wider group.

Poundland with experienced former Asda executives around the business (Barry Williams, Andy Bond et al) and Pep&Co clothing to roll into their estate look in decent shape for the challenges ahead.

Although they are laden with some stores that make little sense post acquisition of 99p, there will be some sites moved on. Some of the existing ones are huge - expanded and opened when single price popularity was at record levels.

Poundworld will need to consider their own estate too, whilst they occupy sites on the high street like Poundland, they too will have expensive retail park locations that are great for footfall but very expensive to operate..... This means they have to work even harder to make a return, especially when they're locked in at £1 per item.

The weakening sterling makes it more expensive to import of course, and this will impact single price retailers significantly, not only are margins thin, but they can hardly hike prices to compensate because it costs more to bring the products into the UK.

It also harms single price because of their tilt towards seasonal assortments, whilst they've worked hard to enhance their wider offer - they do a great job in seasonal ranges for Gardening for example - relying on imported lines to make up the core assortment.

So times aren't easy - one has to consider single price as a mechanism and wonder is it just too restrictive? Or is it appropriate but only as a section within the categories? IE a wider range of Health/Beauty at great value, but always committing to 50/100 lines flagged at £1?

With that in mind, I stumbled upon a Poundworld Plus store which seemingly does this very thing, a wider range of lines but chucks in lines outside the £1 price point.

So initially with the offer; dumpbins sited around the store point to the different priced lines that fall outside that core price point.

All simple enough thus far.

But then it becomes infinitely more confusing, and hard for the customers to follow where the value is.

Part of the issue is the reliance on irregular pack sizes; these are great at £1 as the customer feels as though they've got a great deal, encouraging the treasure hunt element.

However when you're bringing in multi price lines, you have to provide a comparable product across the market - otherwise the questions around 'value' will persist.

Tea featuring packs that are all 'extra free' makes comparatives for customers difficult, ideally some level of comparison versus other retailers would enhance the value proposition.

At the minute; multi price exists in fixture but not in a compelling way, other than being a bay of higher than £1 lines with little cut through.

Standards remain a continual challenge in Poundworld, as they do in many stores but particularly discounters where thin margins force lower staff numbers to make the numbers work.

An abandoned roll cage and a ladder rack overflowing with stock, not making it easy for customers isn't what the name of the game is about. I literally nearly fell over a stack of Coke that was below sea level - stacking all kinds everywhere doesn't equal sales.

New lines in at £2 and the Cereals again suffer with the 'extra value' element alongside £2 price flag on pack. Good deals? Interspersing all higher priced lines in one bay better than merchandising the category with higher priced lines at the top and the core lines in the middle / below?

It looked as though standards were on the wane based on this store visit, Poundworld under Chris Edwards and co were always fixated on store standards and what their shops were presented like.

However this store yielded less signage than usual, an unclear offer (Although that is down to trading / merchandising issues) and lots of stock seemingly dumped all over the store.

Some displays were baffling and others were too full of stock to make it possible to shop. There is often a fair amount carried in the single price retailers, their ability to take stock at short notice is what keeps their customers interested and their model working.

However there was a lot of dead stock around the place too, Candy Canes were abundant at the checkout alongside several other former seasonal lines around the place.

Other displays were near empty which isn't at all like them and perhaps shows signs of the private equity owner starting to squeeze things to retain their profit levels in what is a difficult market - without Brexit to contend with.

Economic uncertainty will be a positive thing for single price retailers, however the value mechanic in the larger food retailers is much, much better these days, so it won't be easy, but they should fare well given the security of the price points.

That said, multi price retailing within the single price framework is a way to diversify and bring new customers in, but it has to be done right. In Poundworld Plus, it was bewildering in terms of pack sizes and entirely wrong for a price sensitive customer.

With Poundland looking to bring clothing into the mix, and with it start to add lines that are priced over £1 - it's certainly about delivering value outside that price point but within the wider framework of value.

For Poundworld; the market will continue to be tough and the new ownership will expect a return on their investment. However if stores start to creak, then it will become very difficult indeed, especially in an incredibly congested space and a competitive market too.

Subscribe to this service here.

From the Grocery Insight newsletter archive, first sent to subscribers on 13 February 2017. Steve now writes at read.groceryinsight.com. See also the blog archive and briefings.