(qlmbusinessnews.com via theguardian.com – – Sun, 12th Aug 2018) London, Uk – –
The bargain chain is due to close the last of its 335 stores this week. What happened to the chain’s unstoppable rise?
Last week at the doomed branch of Poundworld in Lewisham, south-east London, toothbrushes for dogs – reduced to 70p – were lying opposite reading glasses for 50p. One-litre bottles of antifreeze were still £1, but the 2017 Justin Bieber annuals, piled up like discarded pizza boxes, were down to 50p after an initial drop to 75p failed to shift them. Telescopic fishing nets were also selling slowly. Elsewhere, shelves were bare. These were for sale, too: notices taped to the shop windows advertised the fixtures and fittings. Wire “dump bins”, in which products were once piled high, were going for £10.
This was one of the last Poundworld branches still clinging to life. Last month, Deloitte, which has run the chain since it went into administration in June, announced that all 335 shops would be gone by the end of this week, along with the last of more than 5,000 jobs. At lunchtime last Tuesday, the man behind the till in Lewisham didn’t know exactly when the end would come. “They’re saying next week, but it could be tomorrow,” he said as I paid 80p for a phone charger cable and a pack of 50 plant ties.
In 2012, when this branch replaced a Peacocks clothes shop on a prime stretch of Lewisham’s bustling high street, the chain was riding high. Four years after the global financial crisis, the retail sector was quaking under an onslaught of discounters. As real incomes were squeezed, the fixed-price chains with their “everything for £1” model were primed to take advantage, offering an Aladdin’s cave of homeware, groceries and trinkets. Just two years ago, Poundworld was opening a new store every week after a £150m takeover by TPG, a US-based private equity group.
Pound chains held a certain fascination beyond their pricing and multiplicity of wares. This week, Saving Poundstretcher, a new series on Channel 4, began following the mixed-price discount chain, as its owner, Aziz Tayub, tried to revive it. In a case of awkward broadcast timing, the man we see Tayub bringing in to oversee the turnaround is Chris Edwards, the former market trader who launched and ran Poundworld until 2015, but failed to rescue it last month. He left Poundstretcher in April this year.
In 2015, a BBC documentary, Pound Shop Wars, followed the rivalry between Poundworld and the bigger Poundland chain. What happened to Poundworld, which until so recently seemed unstoppable? And what can its rise and fall tell us about the forces that have shaped the high street in the past three decades? Deloitte declined to discuss Poundworld, but the story of its creation can be gleaned from In for a Pound, Edwards’ 2015 autobiography. It charts the lives of a family of travelling showmen who began to drift away from the fairground when Edwards bagged the prime stall on Wakefield market in 1968, when he was 18. In 1974, he opened his first homeware shop in the West Yorkshire town and called it Bargain Centre. Other stores followed, while Edwards also moved into the nightclub business.
In 1994, Edwards saw an opportunity in the fixed-price pound shop idea. He was inspired by the early success of Poundland, which had been co-founded in 1990 by former West Midlands market trader Steven Smith (who was in turn inspired by the creation of the pound coin in the 80s). Edwards, who worked with his brother Laurie (his son, Chris Edwards Jr, also later became a senior executive), renamed his six Bargain Centre stores “Everything’s £1” and watched takings rise.
It was not exactly a new concept. In 1884, a Polish-Jewish migrant called Michael Marks opened Penny Bazaar in Leeds. His slogan was: “Don’t ask the price, it’s a penny”. Marks joined Tom Spencer, a bookkeeper, and, by 1900, Marks & Spencer had 36 Penny Bazaars. Eventually, the pair began moving away from fixed pricing and began trading under their own names. Woolworths started in a similar vein – when the chain arrived in Britain from the US in 1909, almost all its products were priced at threepence or sixpence.
Yet fixed-price discounting then fell out of favour for several decades. Leigh Sparks, a professor of retail studies at the University of Stirling, partly blames retail price maintenance, a practice adopted in the 20s under which retailers agreed not to discount manufacturer prices. It was only abandoned in 1964. Other factors were the rising postwar affluence, followed by 70s inflation. “The consumer boom in the 1980s was also anathema to the model,” Sparks says, pointing to a lingering snobbery towards discounted goods in a decade of excess.
But by the 90s, Poundland and Everything’s £1 (which Edwards renamed Poundworld in 2003) could tap into a renewed appetite for simple, low prices. “We opened with 648 products and on the first day we took over £13,000,” Smith tells me in an email, recalling the first day of trading at the original Poundland in Burton upon Trent. (Smith sold the company for £50m to a US private equity firm in 2002. It has more than 700 stores and is now owned by Steinhoff International, a South African retail giant, after a separate £610m sale in 2016.)
“There was this feeling in British retail that we had gone through the building of cathedrals of consumption in the 1980s and the sector was moving up in quality and price,” Sparks adds, recalling the spread of shopping centres and supermarkets. “There was room underneath.” Notably, Aldi and Lidl arrived in Britain in the same years that Poundland and Everything’s £1 launched (in 1990 and 1994 respectively). Snobbery and old loyalties made growth gradual at first, Sparks says, but then China entered the equation. Edwards writes in his book of a trip to China in 1997: “I would see stuff I had bought from wholesalers in Britain for 55p and it would be for sale [in China] to us for 25p. It was exciting!” With the help of local agents, Edwards adopted the Poundland model of dealing directly with manufacturers, cutting out wholesalers.
Shoppers were excited, too. “There is this sense of freedom about walking into a pound shop,” says Alison Hulme, a lecturer in international development at the University of Northampton, who specialises in the sociology and history of consumerism, and wrote her PhD on pound shops. “You don’t feel you need to keep track of what you’re spending, because you just count the items in your basket.” There are no shocks at the till in a pound shop, nor any fumbling for coppers.
The chains lured supermarket shoppers with everyday goods and groceries, including some from bigger brands. You could go in for a drying rack and come out with a month’s supply of Heinz baked beans. In Poundworld’s Lewisham store, Kath Burton, a shopper in her 80s, told me: “I usually come in for things like fly killer.” This time, she had grabbed a wodge of glittered gift tags from the chaotic array of Christmas goods. (On the next aisle, the chain had brought out a load of Easter products, presumably retrieved from the corner of a warehouse.)
Then came 2008 and the economic downturn. Suddenly, bargain-hunting was more necessity than sport. Growth soared and the number of pound shops doubled between 2010 and 2016, according to the retail analyst the Local Data Company, when Poundland and Poundworld peaked with more than 1,000 stores between them. Valuable sites were opening on the high street: more than 130 former Woolworths stores were taken over by fixed-price discounters after the chain failed in 2008. As Edwards’ brother Laurie writes in one chapter of In for a Pound: “Before the tough times, the powers that be didn’t want pound shops in town centres – I think they thought we lowered the tone.”
That all changed after the financial crisis and the stores began to welcome affluent shoppers. In 2009, Poundland recorded a 22% rise in customers from the highest wealth bracket, AB. That year, Poundland’s CEO, Jim McCarthy, told the BBC: “I remember going to dinner parties a few years ago where the topic of conversation was how much the value of their house had gone up. Those days have gone. Now it’s about how much money they’ve saved on their purchases.”
As it grew, Poundworld tried to pass down its family-run ethos to shop floors. “It’s really hard to explain it to the outside [world],” says one former Poundworld store manager, who prefers not to be named, days after handing over the store’s keys. “I started doing weekend shifts out of school and worked my way up. I absolutely loved working there, and that definitely came from the top. My team still has a WhatsApp group and even now everyone still says ‘Good morning’ and ‘Goodnight’ to each other.”
But the economic environment in which Poundworld had flourished was tightening. Competition became fierce with the growth of other big names in discounting, including B&M, Home Bargains and Savers, and supermarkets hit back with their own discount lines. Some of the challenges have been universal – online competition, rising rents, business rates and wage bills among them – but margins are particularly tight for pound shops. When the pound drops in value, as it did after the Brexit referendum, or the cost of goods rises with inflation, other stores can raise prices in an instant. Pound shops have to be smarter.
At one point, Poundland almost had to stop stocking reading glasses, one of its biggest sellers. “We had to work very hard with our supplier,” says Nick Agarwal, a consultant at the chain. “They took out metal parts from the spring hinge in the arms and changed production to produce the plastic in each pair in one go.” In 2013, Edwards Sr travelled to a factory in China to look at bras, an item typically out of Poundworld’s reach. By reducing the amount of elastic and switching to a cheaper material, Edwards was able to make the price work. He ordered half a million £1 bras on the spot, worked up a smart press release and sold them in days.
“Shrinkflation”, whereby bags of Maltesers lose a few grams or a set of pencils a few, well, pencils, is another tactic. The pound chains work directly with manufacturers to tweak packaging and weights. Customers don’t always like it, a response Poundland seized on in 2016 when Mondelez, which makes Toblerone, increased the gaps between the chocolate bar’s Matterhorn-like pieces. Months later, Poundland, which had sold 12m Toblerones a year, created Twin Peaks, a familiar bar with no gaps and two peaks in each piece. (It was inspired by the Wrekin and Ercall hills in Shropshire, not far from Poundland’s headquarters, the chain said.) Now that a legal dispute with Mondelez as bee setteled , Agarwal says, Twin Peaks will replace Toblerone later this year.
Thanks to its greater size, Poundland, which has so far managed to ride out the retail storm, had more power than Poundworld to negotiate and manage these changes – and fast. But both chains were also struck by volatility in currency exchange rates, especially when they buy in bulk, often in US dollars. Moreover, one can only fit so much into a pound shop basket, making it difficult to profit from each customer. One way past these obstacles has been to inch away from the fixed-price model, as Marks & Spencer did a century ago. Last year, Poundland introduced 50p, £2 and £5 ranges (although Agarwal says 90% of stock is still £1) and began offering Pep&Co clothing ranges without fixed prices. (Pep&Co launched in 2015 and shares the same parent company.) The key, Agarwal says, is to preserve the clarity of pricing.
The unnamed former Poundworld store manager says the first sign of trouble came when the chain changed its own prices in 2016. “Each week we would be rolling out new shelving bays as ‘manager’s specials’, where prices were written by hand,” the former manager says. “Customers would say: ‘I thought this was supposed to be a pound shop.’” Yet Poundworld was already fixated on growth, desperate to bolster its footfall and purchasing power. It opened a vast new distribution centre in 2016. “Expansion is definitely on our minds,” Edwards Jr wrote in his contribution to his father’s book. “We have research showing there’s definitely room for hundreds more stores. Then we’ve got Europe and the question becomes: ‘Where do you stop?’” This summer, the answer came back.
There were several attempts to save Poundworld. The Edwards family tried, even after Edwards Sr had left the company in 2016. Even Smith, the Poundland founder, considered rescuing his old rival. Both men have accused Deloitte of not doing enough, but the administrator said it received no “credible and acceptable bid” for the chain. “It is very difficult to do a deal with a business that is in administration,” Smith says. Meanwhile, there are hundreds more empty stores on high streets.
As I browsed the chaotic aisles in Lewisham, a man armed with a clipboard was surveying the store for the landlord. “It’s absolutely massive for this location,” he said, also preferring not to be named. Finding a new tenant may not be easy.
The former Poundworld manager, who starts a new job this week, wondered about the state of the business earlier this year when the inventory on the store’s online ordering software began to shrink: “Groceries were going from 24 pages down to 12 and you were worried about filling the shelves.” As rescue attempts failed last month, staff knew it was over. The closing-down sale and clear-out were “heartbreaking … I really struggled to get through it,” the manager says. “It has been like a bereavement. We were tired and we had given this store everything.”
By Simon Usborne