Poundland is on the City’s discount sale rail. Despite posting a £1.6bn turnover last year, its European owner wants out. Investors in B&M, a similarly value-focused retailer, have also been heading for the exit.
Despite an apparently robust trading update in January, B&M looked at the future, and especially its profit guidance, and they ran. Smart move. Last week, the group issued a profit warning and said its CEO Alex Russo was stepping down.
The shares have been in long-term decline. Over the last 12 months, they’re underwater by nearly 52 per cent. By contrast, the broad-based FTSE All Share index is up by 11.5 per cent over the same period.
What’s going on? Poundland is a victim of its European parent, Pepco, seeking to pep up its performance by streamlining the group and operating under a single brand. This leaves Poundland as an unwanted child with very poor prospects.
Pepco boss Stephan Borchert said: “At Poundland, recent performance has been very challenging, impacted by declines in clothing and general merchandise following the transition to Pepco-sourced product ranges at the start of the year.”
A sale, he said, was the preferred way forward for the retailer. Does this mean a buyer coming along and buying it for a pound? Perhaps that’s pushing it a bit.
Former boss Barry Williams has been slotted back in. He’s shown he can turn a business around and he is likely to focus on value, with an increase in the number of products sold at a pound. It is some time since Poundland did away with selling everything at that price point because, obviously, inflation.
However, as Pepco told its investors, he is being pitched into a retail hellscape. It didn’t put it quite like that, preferring to say Poundland was operating in “an increasingly challenging UK retail landscape that is only intensifying”.
But faced with that, Williams will need a mighty magic wand to bring the business back to life and while Pepco still loves him, it isn’t willing to stick around to see if he can deliver.
‘Is it really unrealistic to think that Pepco would accept as little as a quid for someone to take the underperforming Poundland off its hands?’ (PA)
That also explains investors being so down on B&M even though one wonders what Williams would surrender if someone offered him the chance to be in its position. An arm? A leg?
The trouble is, the high street’s diminishing band of holdouts all face the same deep-rooted problems. It is not just the discounters that are looking aghast at the outlook. Their costs are going through the roof. Steep rises in the minimum wage, welcome in many respects, are nonetheless tough to handle when you’re also paying higher national insurance contributions (NICs) for every member of staff you employ on top of that.
It isn’t just Rachel Reeves‘s decision to increase the rate from 13.8 per cent to 15 per cent either. She also reduced the threshold. That means employers start paying after the first £5,000 rather than £9,1000.
This is particularly hard on retailers, which have large workforces made up of relatively low-paid employees. Even the solidly profitable supermarkets – an increasingly tough source of competition for pound shops with their habit of price matching to the likes of Aldi – have been warning of price rises and job cuts. Investment plans have, meanwhile, been mothballed.
David Bharier, head of research at the British Chambers of Commerce (BCC), said: “UK firms are facing a double whammy of rising domestic taxation and a potential global trade war. Businesses are telling us that the rise in national insurance and the minimum wage will increase costs, stall investment, and cause them to rethink their workforce plans.”
The BCC has downgraded its 2025 growth forecast for the UK economy to just 0.9 per cent from 1.3 per cent. It is far from the first institution to do that. The Bank of England cut its own prediction in half, to just 0.75 per cent.
Small wonder. Consumer confidence remains mired in the red, where it has been for months, with business confidence similarly low. The chancellor has greeted the increasingly desperate calls for help, or at the very least a phased increase of the new tax rates, with a tin ear. So is it really unrealistic to think that Pepco would accept as little as a quid for someone to take the underperforming Poundland off its hands?
Absence of a Damascene conversation from Reeves, who really needs to find some way of getting business back on the side if Labour is to stand a chance of making good on its growth promises, I don’t think it is.
As for the high street, the tumbleweed is blowing down it. If you live in a prosperous area, you may still find the odd shop amongst the cafes and the beauty salons, which have been doing well. If not, it’s chicken shops and not much else. With gambling moving online, even the bookies have been giving it up as a bad bet. Reeves needs to wake up, fast.
