Poundland cashing in on success
Although I'm not a frequent shopper in Poundland, I was astounded that they have just reported full-year revenues which topped £1bn for the first time. My surprise was not at their unqualified success; it was that they didn't achieve these sorts of results years ago.
Poundland and 99p stores sell everything - from tinned peas to Cliff Richard calendars - for a quid. Now Poundland is trying to snap up its rival, the 99p Stores, for £55m - that is if the Competition and Market Authority allows the deal to go ahead.
This sector of the market is continuing to expand at a time when others on the high street are struggling for survival. So, there must be something very attractive about what they offer consumers.
Consumers are initially attracted by the headline - "Everything for a Pound" - but when they are in-store, they are generally inclined to buy more than they actually need, which helps to drive volume.
However, even if we only purchase a one-off product, the price remains the same, because they:
(1) buy in bulk from China through exporters specialising in cheap merchandise;
(2) strike good deals on products which are nearing the end of their shelf-lives;
(3) buy remaindered stock from bankrupt firms keen to realise the value of their assets;
(4) reduce the sizes of some of their products, so that, for instance, we get fewer biscuits in multi-packs; and
(5) take over vacant units left by other high street stores which have gone bust.
Consumers are attracted to the low-price, no-frills formula, which has found particular resonance in the era of sluggish economic growth in the same way that they have become fanatics of the so-called German discounters, Aldi and Lidl.
They even boast about shopping in these types of outlets and are keen to show off their latest "finds" at knock-down prices.
All this augurs well for the future of these store groups, but the big question is: will we be happy to part with that extra penny if Poundland acquires the 99p store group? Or will we be like Jeffrey Archer and ask for "Not a penny more, not a penny less"?
- Donald C McFetridge is a retail analyst at the Ulster University Business School