A discounter like Poundland feels like an obvious destination when money's tight but a recovery of sorts is under way. Surely the logic that when people start to feel better off (and they aren’t yet) so they will become less price sensitive and will shop elsewhere?
The chief executive of Poundland told me he doesn't think that will happen, he’s betting on it. The company has 528 stores currently, plans for an additional 60 next year and ambitions for 1,000 across the UK. Jim McCarthy believes the recession, the internet and the rise of the discounters has combined to permanently change the way we shop.
What’s interesting is that his rivals appears to agree. Philip Clarke at Tesco, spoke last week of a “painful new reality”. Over at Morrisons, Dalton Philips had a similar script. His new reality was “brutal” and he went further, comparing the discount retailers to the discount airlines, suggesting that Aldi and Lidl causing the same sort of upheaval Ryanair and Easyjet did twenty years ago.
A glance at the behaviour of the big supermarkets tells you something is afoot. They are cutting prices, cutting costs and cutting jobs; Asda today announced 1,300 redundancies as part of what it delicately called “restructuring”. Poundland says that half of the British adult population has now shopped with them – 4.9 million transactions a week and counting.
It’s worth noting though that Poundland’s profit margin stands at 3.7% (or 3.7 pence in the pound).
That looks small but is only slightly lower than at Tesco (5% and falling). Poundland presents itself in a way that suggests there are bargains to be had but a profit margin of that size also suggests the savings may not be as large as perhaps you assume they are. Reflect too on the fact that in the shop where everything is a pound the average customer apparently spends £4.55.