Poundland profits from cash-strapped consumers

FINANCIAL pressures that have driven consumers in droves to discount chains such as Poundland are likely to continue in the coming year, according to the boss of Europe’s largest single-price retailer.

Jim McCarthy, chief executive of the rapidly-expanding Poundland chain, said consumers still feel as though the UK is in recession. Despite an unexpected rise in retail sales during January, the former managing director of convenience stores at Sainsbury’s is predicting another tough year for the retail sector.

“I still expect 2012 to be very difficult for consumers, very difficult for retailers,” McCarthy said. “I think there will be some more casualties on the retail side. 2013 might possibly be a bit better.”

Poundland, which will open its 48th Scottish store next week, in Partick, Glasgow, has been expanding aggressively as private equity owner Warburg Pincus seeks to capitalise on the demand for value among UK shoppers.

The company is adding 50 stores a year to the network, now totalling 389 shops. This has included the extension of its Dealz chain in Ireland, which has been touted as a prelude to European expansion.

Poundland was among the biggest winners in the high street scrap for consumer spending at Christmas, boosting like-for-like sales by nearly 6 per cent over a year earlier.

Including the opening of new outlets, sales surged by 25 per cent during the five weeks to New Year’s Day. Cash-strapped shoppers purchased 24.5 million Christmas cards, 10,000 miles of wrapping paper, four million Toblerones and three million boxes of Maltesers.

McCarthy expects sales to reach £1 billion by 2014, up from £642 million during the year to 27 March 2011. “Poundland’s a very good business in poor times, it’s an excellent business in good times,” he said.

The chief executive’s comments came in the wake of news that Poundland has become the latest big-name retailer to step back from the UK government’s controversial back-to-work scheme that puts the unemployed on unpaid placements for up to four weeks.

Poundland has said it will withdraw from the initiative, but intends to continue with a separate voluntary work experience programme. The company added that it would continue to talk to the Department for Work and Pensions to ensure that no jobseeker would be penalised for dropping out of a placement. Under the current system, those who leave “without good reason” after the first week can lose some benefits.

Other companies such as TK Maxx, Waterstones and Sainsbury’s have also withdrawn from the scheme. Tesco is still among the participants, but announced earlier this week that it would offer jobseekers the choice of either remaining on benefits or taking up paid work.