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On the shop floor with.......Poundland's Jim McCarthy
Archived article dated Thursday March 20th 2008
Expanding Poundland continues to attract new customers.
By Glynn Davis
Who would have thought that Poundland would be the store of choice for many parents looking to create those annoying take-away party bags for their young children's birthday parties.
Well it is and this middle class activity is driving up the numbers of AB shoppers into Poundland's 170 stores throughout the UK, which in turn is helping to broaden the company's shopper mix away from only the most acutely price-conscious shoppers.
Although the AB's still represent only 10 per cent of the mix the fact that they are crossing the threshold at all is a strong indicator that shoppers of all demographics are increasingly seeking out value.
Jim McCarthy, chief executive of Poundland, knows a thing or two about the AB shopper having previously worked as managing director of Sainsbury's convenience stores, which has a heavier weighting of shoppers in this grouping compared with the other major grocers.
“The AB shopper numbers are gently ticking up at Poundland as customer numbers grow. They shop even more intensively at 'event' time and for parties to put their party bags together. It proves that there are some really savvy shoppers out there,” he says.
However, his experience extends to all demographics having also worked as chief executive of T&S Stores with its diverse customer base before it was bought by Tesco. Much of this experience is now being used to great effect at Poundland, which he joined in August 2006, especially as the consumer downturn starts to bite and disposable incomes of a growing number of shoppers across demographics become tighter.
In McCarthy's view Poundland is a real “inflation buster” as it has held the same price for 18 years since the first shop opened for trading at the Octagon Centre in Burton-upon-Trent in December 1990.
Although he says inflation can be challenging for a fixed-price retailer like Poundland the skill is to leverage the scale benefits of being Europe's largest single price discount retailer and “engineer” the products that are sold. He cites batteries (the company sells an impressive three per cent of the total amount sold in the UK) as a good example. The price of zinc has increased so instead of selling 18 AA batteries in a pack for £1 Poundland is now selling them in packs of 12 batteries for £1.
While McCarthy suggests that this enables Poundland to still retain the value differential compared with other retailers, he says the other components that make up the company's successful formula (which helps it attract two million customers per week) must also be added to the mix. These are full availability, a variety of good brands, and an ever-changing range.
The range relies on the skills of the buying team who work on the basis of making quick decisions and moving fast to secure batches of stock when it becomes available at an attractive price. This can sometimes involve same day payment to suppliers and leads to a situation where Poundland is able to turn its stock enviably quickly.
“Customers don't always know what to expect when they enter a Poundland store. We do a fair amount of 'opportunity buying' and we often are not able to repeat these lines. We have a churn of 7,000 to 8,000 SKUs per year with an average week seeing 160 products changing,” explains McCarthy.
To accommodate this number of lines the stores are typically 4,000 sq ft, although the average has been heading towards the 5,000 sq ft mark, which enables the company to stock goods across 16 different categories. Although McCarthy says the addition of new categories are always possible the key proviso is that they do not cannibalise anything the company already stocks.
On average each store holds between 2,500 and 3,500 SKUs at any one time with up to 30 per cent of these branded FMCG products, which make up over £100 million of the group's total annual sales of circa £350 million. Of these items food accounts for 14 per cent of store space, that translates into 28 per cent of total sales.
Although this greater sales per-square-foot suggests food should possibly be given more space McCarthy argues against such a move: “We're a general retailer, with a unique offer, not a supermarket. We need to be very productive and use food and our amazing value to drive footfall.”
The 2,000 non-branded lines that are stocked fall within 43 sub-brands with the Poundland name only remaining on a few of these products. However, it is a different matter with the stores themselves as shoppers can expect to find the green fascia and Poundland name increasingly popping up on UK high streets as McCarthy confirms that the company is looking to open as many as 30 new outlets per year.
The deteriorating state of the commercial property market is likely to help the business achieve this objective, according to McCarthy, who says: “Landlords are being more realistic as there is an amount of empty property
The company has identified 600 outlets as being the optimum number that it could open in the UK so for the foreseeable future McCarthy says the focus will be on the domestic market. But further down the line he suggests the concept could be taken overseas: “Once we've completed our UK opening plan then there is the rest of Europe to address with countries like Germany, which is discount-led, offering further growth opportunities. But this is a few years down the line.”
Although McCarthy says there is much evidence to prove that UK retailers have historically found it difficult to roll out overseas the one thing in Poundland's favour is that value is a globally recognised entity. But first he says there are other exciting areas to tackle in the domestic market - including the launch of a transactional website next year.
He says Poundland experimented with a website eight years ago but despite the average order size being six-to-seven-times higher than that achieved in-store McCarthy suggests it was let down by its fulfilment not being up to scratch. This time around he promises things will be different.
“We believe the channel has to be entered, but this time it will be planned, tested and then launched. With events
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