Poundland's chief tells how the bargain brand has forced the big names on the high street to take notice

IT'S JUST after 9am on the ground floor of Edinburgh's St James Shopping Centre and a garishly lit shop is already busy with customers. Bargain hunters are out in force filling up their baskets with everything from flycatchers to huge packets of Maltesers. The rest of the high street may be in turmoil but this is Poundland, where lately the tills haven't stopped ringing.

Its proposition is simple: there are 3,000 product lines, including more than 800 big-name brands, and they all cost the same price. It's 1, for everything.

Passing through the store Jim McCarthy, chief executive of the Wolverhampton-based chain, stops to speak to the manager. The latest sales figures have been fantastic he tells her, before adding in his warm Midland brogue "well done". His face is a picture of happiness. No wonder he's smiling, more than two million shoppers visit the chain's 212 stores every week buying on average four items. The numbers speak for themselves. Profits have more than doubled to 8 million on a turnover of 330m, with sales expected to exceed 400m by next year.

"Go out and walk around the centre," he says. "Then come back and look at our shop. We have more customers in our stores than any other shop on the high street. We have a saying among the staff – it's Christmas every day in Poundland. This may sound corny but in retail terms it's true. Our biggest problem is managing queues."

This year the group will open 41 stores, increasing its workforce to more than 7,000. The plan is to reach 650 stores "in time" before a possible expansion overseas. "It will have to be Euroland," smiles McCarthy, a protg of Sainsbury's chief executive Justin King. He was King's first appointment to the board, joining Poundland in August 2006.

The chain was founded in 1990 when Steve Smith and his father Keith opened the first shop in Burton-On-Trent. The Croydon branch is now the busiest single-priced outlet in the world, generating more than 9m a year from 30,000 customers a week. All this despite not advertising. So what's the secret?

"When I took on this job I came in from running Sainsbury's convenience stores," he says. "At that time I looked at the business and thought the way to grow this was to expand the price offering and increase the margin. I envisaged a 2 section, a 50p section, a discount zone etc. So I took my finance director and we went to America to see how the discount stores over there did it. We visited the top three and the overwhelming message I received was not to change the single price. The customers understand it."

In reality there is very little cost in the business. McCarthy employs a 70-strong trading team in Wolverhampton who chase down the best deals globally. In contrast to the major supermarkets, decision making is quick, on the same day, and payment is swift. It's a relationship that works both ways. Suppliers know they can offload their goods, get their cash quickly and service the order relatively cheaply. For Poundland it means they can drive down the price and get the best last-minute deals. At one stage they were selling golf clubs. "People couldn't believe it," he laughs. "They were walking out of the shop with a set of clubs." It's a classic market traders' business model, an analogy McCarthy doesn't disagree with.

"Keeping costs down has to be part of our DNA," he says. "But we also do a lot of detailed market research. You don't sell more every year without knowing what your customers are buying." Nearly a third of Poundland sales are impulse buys.

But it hasn't always been plain sailing. The group has its fair share of detractors. In 2006 it was forced by trading standards chiefs to recall car jump leads after it was found they could overheat and catch fire. McCarthy says two-thirds of its products now come through UK suppliers, with the remainder from low-cost nations such as India, China and Indonesia.

The core customer base is female, drawn from the C2, D and E socioeconomic groups. But the recession has attracted a new crowd of penny-pinching high earners. In the last year the chain has seen a 22 per cent increase in the numbers of shoppers from the AB social group, a factor McCarthy puts down to the phenomenon of the "savvy shopper".

"There is a common misconception that we are benefiting from the recession," he says. "Yes, this is a good business in a downturn but it is a better business when times are good. At the moment 10% of retail space is empty, so customers are not being offered a full retail offer to choose from. This deters them from coming out. Coupled with this they have less money in their pockets to spend. You may think we benefit as a result, but we don't."

Asda, Wm Morrison, Sainsbury's and Tesco have all launched ranges of sharply discounted goods selling at 1, while Aldi and Lidl are both pursuing aggressive expansion plans in the UK. Despite this McCarthy insists the discount sector is the place to be. "We've been doing this for 19 years," he says. "In that sense we are the original inflation-busting store. But there are more value-driven retailers out there then ever before, companies such as Primark, Lidl and Aldi. An increasing trend will be landlords who seek to put together value sections in their developments to draw people through."

He also argues that the chain is filling some of the space left by the collapse of Woolworths. Although he doesn't like comparisons he admits to bidding for a few of its former stores. Last month he opened a store in Stratford-upon-Avon on the former Woolworths site which he says is not a typical Poundland town.

"Woolworths were very different to us. We are not the new Woolworths but we are seeking to fill some of the vacuum it has created. For example we are particularly strong in confectionery, as were Woolworths. So we are looking at developing new lines."

McCarthy's career has been steeped in retail. He was managing director of Next's Neighbourhood Retailing operation before becoming chief executive of the 1,200-outlet convenience shops chain T&S Stores, which he sold to Tesco for 540m in 2004. At Sainsbury's, King appointed him to the retailer's main operating board where he was managing director of convenience stores and small supermarkets. It was, he admits, a "fantastically exciting time."

"Justin's a smashing lad," he says. "A tremendous businessman who came into Sainsbury's just at the right time. He gave me a lot of freedom and we were growing the business well."

Although he loved the job he often found himself working from 6am to 9.30pm, coupled with a long commute to London, which meant he was seeing less and less of his family. Poundland's head office in Willenhall in the West Midlands, near his home, was a major pull. He knew the company from his T&S days when he had looked to buy the business. "It was really exciting to be a CEO again, to shape a company in my own mould. The conditions to grow the business have never been better, not least with the availability of sites. What we find is that because Poundland has such a high footfall, landlords are keen to get us into centres and let shops around us."

But there has been some speculation that the group itself might be sold. It has been owned since 2002 by private equity group Advent International and last September it emerged that Advent had been discreetly sounding out banks over a possible sale.

"Advent's business is to buy and sell businesses. It has been committed to Poundland for seven years but inevitably businesses get bought and sold. At the end of the day it doesn't really matter who owns Poundland. My job is to run it and I'll leave the timing of any sale to them (Advent]. There are millions of people who have not had the opportunity of shopping with us yet and we want to reach them."