Thursday 19 November 2015

Poundland's 26% profits slide, a looming lesson in volatility?

News of the steep fall in pre-tax profits, based partly on the peaking of the Loom bands craze - selling 728,000 of the plastic bracelets a week, dropping to 2,000 – illustrates the extent to which pound shops are affected by consumer whim.

Whilst Poundland are perfectly equipped to optimise such demand with great prices, deep down as a public company the helter-skelter nature of whim-demand has to make them more appreciative the steady-state sale of ‘less exciting’ mainstream brands.

Given this need, and providing the branded supplier’s costings make a pound version viable, then the price discounter represents a good alternative route to consumer.

However, in the medium term both retailer and supplier are increasingly vulnerable to any rise in running costs, such as the introduction of the living wage. Any increase in inflation will also present a problem, given the onshelf £1 price.

In time Poundland will become sufficiently established in the mind of the consumer as a source of good value and will probably be able to increase shelf prices, with the ‘£1’ becoming a reminder of low priced value for money.

Meanwhile, suppliers need a constant focus on cost control and product development in order to remain within the £1 price parameter, and work with Poundland on a fair-share search for realistic and profitable ways of optimising this unique but volatile route to consumer.

All else is detail.... 

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