In for a penny, in for a pound... well 97p

Posted by Jessica Searle in Credit Crunch on 5 June 2013 - Jessica worked as a Credit Analyst at checkmyfile until 2013

With many households tightening their belts in these hard times, there has been a distinct rise in discount shops upon the high street, while many seemingly well-established stores have closed.

With fierce competition emerging from the growth of alternate discount chains, the current high street favourite Poundland has made a U-turn in their business plan, reducing items in four stores to only 97p.

In the year ended 30 April 2012, Poundland posted a continued growth in both sales and profits. Sales were £780m, up 19.3%, and pre-tax profits were generated of £18.3m, up from £12.2m in the previous year.

Yet despite this, in some areas where rival 99p stores have opened, what was once thought to be an immovable price structure has seen Poundland prices drop to 97p.

Another strategy being employed by Poundland is the introduction of vouchers entitling customers to 'two for £1', or one pound off with a purchase of 6 items. This move has been attributed to 'tactical' reasons.

Jim McCarthy of Poundland says, “Poundland always aims to offer great quality products for amazing value to all its customers... Like all retailers we test competitor response options all the time and this is just one of a number of tactical options. This price point is currently being applied in just 4 stores.”

It has declined to confirm how long these promotions will run for. Trade magazine Retail Week reports that the 97p promotions have already been running for over a year.

The rival 99p store has now opened 224 branches in England, Wales and Ireland. Hussein Lalani of the 99 store says that Poundland's decision to reduce its prices is “a great compliment to and affirmation of our 99p Stores Brand... it illustrates what an impact we must be having on Poundland that they have had to change their business model.”

As a thank you, Mr Lalani has confirmed he shall be sending a case of 99p “bubbly” to Poundland’s chief executive.

The move to discount prices at Poundland may also be attributed to recent bad publicity from the Channel 4’s “Dispatches: Secrets of Poundland”, where the retailer was accused of shrinking products in order to maximise profits, among many other marketing and packaging tricks used to encourage shoppers to spend more money.

So is the Poundland bubble about to burst, or is it like many other retailers in this tough time, having to adapt in order to maintain their presence upon the top of their market?

Jessica Searle is a Credit Analyst at checkmyfile and has a degree in English Literature from the University of Exeter. You can contact her at jessica.searle@checkmyfile.com

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