Pepco Hires Advisors To Oversee Poundland’s Transition To New Ownership

Weeks after striking a deal to sell Poundland to investment firm Gordon Brothers, Pepco Group has hired advisers to oversee the struggling discounter’s transition to its new owner through a court-sanctioned process that will involve store closures and job cuts.

According to Sky News, the company has drafted in FRP Advisory to act as an observer, with the High Court scheduled to sanction Poundland’s restructuring plan in the last week of August.

Under the proposed deal announced in June, 68 Poundland shops will close in the short term, along with two distribution centres. The retailer is also seeking rent reductions at other sites, ending its online operation, and reducing its food offer.

More shops are expected to be shut under Gordon Brothers over time, resulting in hundreds of job losses.

Barry Williams, Managing Director of Poundland, said at the time of the deal’s announcement: “It’s no secret that we have much work to do to get Poundland back on track.

“While Poundland remains a strong brand, serving 20 million-plus shoppers each year, our performance for a significant period has fallen short of our high standards and action is needed to enable the business to return to growth.

“It’s sincerely regrettable that this plan includes the closure of stores and distribution centres, but it’s necessary if we’re to achieve our goal of securing the future of thousands of jobs and hundreds of stores.”

NamNews Implications:

• Poundland’s restructuring plan is both logical and essential…
• …the only realistic way of moving forward.
• i.e. Poundland has to be cut to fit available demand, as a basis for recovery and growth.
• Hopefully all stakeholders will share that view…

Poundland’s Sale Exposes Cracks In Value Retailer

Following yesterday’s news that Poundland has been sold for less than £1 to turnaround firm Gordon Brothers, Emily Scott, retail analyst at GlobalData, offers her view:

“Poundland’s sale comes amid mounting losses and declining revenue, as it has faced intense competition and the distraction of the failed introduction of its Pepco clothing and general merchandise range.

“Poundland’s appeal was rooted in its straightforward approach to value with a single price point. However, in recent years, the retailer has strayed far from this. The introduction of multiple price points has confused customers, while still not enabling shoppers to trade up within its ranges as it lacks the additional choice of mid to premium products. Poundland has lost out as consumers are becoming more discerning, seeking a better balance between quality and value for money, driving them to trade up.

“The British variety store chain has also faced increasing competition from the grocers, particularly as Tesco has leveraged its Clubcard loyalty scheme to offer customers exclusive discounts and enhanced value.

“GlobalData estimates that Home Bargains, B&M and The Range’s market shares in the UK discount market have increased by 7.2ppts, 6.2ppts and 1.3ppts, respectively, between 2019 and 2024, while Poundland’s share has fallen 2.3ppts. Poundland’s weak variety of branded goods at low prices has meant it has struggled to keep pace, damaging its brand perception amongst budget-conscious shoppers.”

NamNews Implications:

• Poundland’s success to date depended on decades of near-zero inflation.
• Meaning the £1 proposition was viable for much longer than normal.
• A return to ‘proper’ inflation rates undermined everything.
• With the inevitable result.
• Good while it lasted…

Number Of Firms Preparing Offers For Poundland

Alteri, a private equity investor that owns Bensons for Beds, is reportedly among a pack of suitors circling struggling discount chain Poundland.

According to Sky News, Alteri, which recently missed out on a deal to buy the high street operation of WH Smith, is preparing to submit an offer for Poundland in the coming weeks. It is expected to be among a number of bidders for the 825-strong chain.

Last month, Pepco Group confirmed that it was evaluating all strategic options to separate off its UK business, including a sale. Its Chief Executive, Stephan Borchert, revealed at the time that it had already received interest from potential buyers.

He declined to comment on the type of interest, what stage talks had reached, or what Poundland was worth, but said he was confident its future would be decided by September this year.

Advisory firm Teneo has been appointed to oversee the process, with analysts suggesting that a deal could put scores of stores at risk of closure.

Despite efforts to return Poundland to its core £1 offering, the business suffered a slump in sales last year. Last month, Pepco highlighted that Poundland was operating in an increasingly challenging UK retail landscape that would intensify due to tax hikes, adding further pressure to the discounter’s cost base and impacting profitability.

Alteri, which is backed by the investment giant Apollo Global Management, has not commented on the Sky News report.

NamNews Implications:

• Key facts:
• Poundland is up for sale.
• Any attempt to return Poundland to its core £1 offering has been diluted via inflation (£1 at launch is now £3+).
• Anyone buying Poundland has to:
• Close unprofitable shops
• Sell remaining sites to the ‘highest bidder’
• Possibly optimise any residual brand value via online
• And that’s it, nice while it lasted!

Poundland Launches Rival To Toblerone Bar

At 180g, Poundland said its Twin Peaks is 20% heavier than its branded equivalent, and offers “a double mountain in every packet”.

 It officially goes on sale in the first week of July at the chain’s famous £1 price point.

NAM Implications:

• Twin peaks, and more of them…
• A self-inflicted no-brainer…?

Poundshops joining the mainstream?

Given Poundland’s successful flotation in March 2014, it is perhaps time for NAMs to seriously consider Poundshops as part of UK mainstream retail.

As a start, compare the Poundland ratios vs. the Big Four latest results.

As can be seen above, they are already ahead with ROCE 15.6%, equal on Net Margin 3.7%, underperforming on Stockturn 11.1/annum, with modest Gearing 16.1%

All they - and other poundshops - need to keep in mind are the retail standards being maintained by Walmart (ROCE 18.2%, Net Margin 5.2%, Stockturn 10.6 and Gearing 51.4%)

All a NAM needs to keep in mind is the need to help them…!

Discount stores boom as upmarket shoppers brag...

The economic quagmire has provided the perfect breeding ground for general merchandise discounters, who have expanded aggressively – more than filling the void created by the collapse of Woolworths in 2008. Analysts at the IGD predict the value retail sector will be worth £8bn by 2015.

Classless appeal
But the key to discounter success is their classless appeal. Mature NAMs will remember their first visits to Aldi Berlin in the early 1990s, and their bemusement at the shopper transport parked outside – ranging from students bikes to state-of-art Mercedes. As we all knew at the time, this could never happen in the UK….

City paying heed
The growing might of chains such as Poundland, Wilkinsons and Home Bargains means the City is starting to take notice. Stockbrokers Shore Capital believes discount retail is the fastest growing area of the whole market, with the strongest performers potential candidates for stock exchange listings or takeovers by quoted chains further down the line.

The forward working environment 
Given their arrival at critical mass in a flat-line economy, we reckon that discounters are merely at the start of a five year opportunity to gain share in the UK. NAMs need to second-guess the politicians: they have been telling us about imminent recovery for the past five years.
Having thus established politicians' credibility, with little change to EU/global economic conditions, is it likely that we can expect any real uplift in the next 5 years…?

Competition hots up...
The competitive landscape ranges from single-price chains such as Poundland and 99p Stores to general discounters such as Home Bargains and B&M Stores. But the rapid expansion of what were once regional, often family-run, companies means the retailers are now treading on each other's toes.

A zero-sum future?
This means that market will operate on a zero-sum basis with any share gains at the expense of not only other retailers but also of other discounters.
In other words suppliers have to prepare discounter strategies that are in harmony with  overall trade strategies, taking care to avoid inadvertent compromise or conflict.

This means that suppliers need to factor discounters more aggressively into their organisational structures and trade strategies, ‘permanently’…

Permanently? Bear in mind that the other characteristic is that discounters thrive in a downturn, but rarely surrender any gains in market share in a rebound… 

Pound Shop Innovation - Moves to the Mainstream?

Given that Marks & Spencer started as a ‘pound shop’ (Penny Bazaar, 1894) and Woolworths followed as a ‘sixpenny store’, it is perhaps valuable to seek signs of innovative pound shop retailing as a pointer for the future, and perhaps move this emerging sector closer to our core trade strategies?   

Key pound shop moves include:

-       Pound shop launches door-to-door home deliveries for a pound a trip

-       Mobile Pound shop sets up stall at local events, offering to recycle ‘your old £10 + £20 notes for something you can use’! Also have a flourishing online pound site 

-       Pound shop van travelling to outlying villages (see pic above)

-       Around A Pound (Newry, N.I.) have a pound shop on eBay and sponsor motorcycle racing

-       East Hull Community transport offering transport at £1 a trip   

-       Amazon offering Super Saver Delivery Filler Items (around a pound)   

Time for someone to ignore the numbers, try a BOGOF and really stop the whole process in its tracks?

For a detailed treatment of the rise of pound shops see Kamcity Library   

Incidentally, we found a number of independent pound shops branding themselves as ‘Around A Pound’. Branding experts will foresee some issues here in that the label will either become generic, or may lead to possible passing-off charges being levelled at rivals.

In which case, this may cause some enterprising legal firms to combat ‘Tesco law’ by offering cut-price legal advice at a pound-a-pop?

Have a legal pig-flying weekend, from the NamNews Team!

Pound shops: increasingly must-supply?

If you accept that we are now in a flatline decade, we all need pound shops.

As retail landlords, local government, the savvy consumer and suppliers are force-fed reality, so the downmarket, increasingly common big five players become more appealing as solutions to all stakeholders’ problems…

With over 3,000 outlets across the UK, the inevitable trade concentration is taking place, resulting in 6 major chains as the good guys get better. …the way NAMs like it, in fact.

As the chains have grown, suppliers have been willing to strike dedicated deals with them and this has seen pound stores stock more focused lines on a more regular basis, even in private label.

To help ‘those in-house’ to see the light, see our detailed treatment giving thumbnails of the major players, key category opportunities, latest available shopper-research and our glimpse of the future.

On your next ‘day-out’, why not check out some outlets as a supplier, discover at least £20 worth of essential purchases as you morph into a pound-shopper, and come out determined to find a way of adapting your range to optimise this emerged route to consumer, like your competitors?   Fabian Panthaki, NamNews

Poundland plans to go online?

With a 29% increase in turnover to £509m via 320 stores, Poundland have moved into mainstream retailing.

Appealing to two groups of savvy consumers who seldom forget lessons learned in austerity, their regular shoppers are those who need to save money, and those who choose to do so…

Going online will simply remove some costs and broaden Poundland’s appeal.

No longer an outlet for ad hoc ‘special packs’, or ends-of-lines, the pound shops now sell regular lines and brands, albeit forecasting ‘overages’ on a transaction basis that has somehow become essential…

Their ability to grab headlines will increase the competitive threat they represent to the multiples and discounts, probably resulting in retaliatory pricing moves?

Perhaps it is time to scope out the options, run the numbers, reassess their competitive appeal and factor poundshops into your trading strategies, before the multiples do it for you?