Poundland's Jim McCarthy: 'We don't sell £1 products. We sell incredible products.'

THE MT INTERVIEW: Poundland's CEO has reached a crucial point in his career, with a takeover of 99p stores underway and expansion abroad. Even the famous £1 price promise isn't sacred...

by Matthew Lynn
Last Updated: 02 Mar 2016

Jim McCarthy leans forward in his chair. 'Two packets of Cadbury chocolate chip cookies for a pound!' he exclaims. 'Cadbury's. Two of them. For just a pound. Unreal ...' He shakes his head, as if in bafflement that the chain he runs could make such incredible offers. 'You see,' he continues. 'That is the point about Poundland. We don't sell £1 products. We sell incredible products, but for a pound.'

We were sitting in the distinctly plush and, if we are being honest here, not-very-Poundland, lobby of the Grosvenor Hotel in Victoria. McCarthy is busy trying to finalise the takeover of his ever-so-slightly cheaper rival 99p Stores, a £55m deal that has just been referred to the competition authorities, even though it is hard to imagine a more ferociously competitive sector of the market. If it goes through, as it probably will, even if they have to sell off a few stores, then McCarthy will emerge as the king of the discount retailers, the man bringing what he would describe as 'incredible value' to every high street and shopping mall in the country.

In reality, there is probably no one better suited to the role. Jim McCarthy is every inch a retailer, and a cut-price budget one at that. If you could get two CEOs for the price of one, he'd be the man to offer it to you. He has dedicated his entire career to retailing, specialising in convenience and price. At Poundland, he has taken sales close to the £1bn barrier. Perhaps more importantly, he, along with chains such as Aldi and Lidl, has made budget shopping respectable, driving it into the mainstream, and creating a trend that has upended even the likes of the mighty Tesco. And he is far from finished - Poundland can still nearly double in size, he believes, and its success can be replicated abroad in Ireland and Spain, and online.

And yet McCarthy's climb has also been a difficult one, with a fair amount of hardship along the way. He has been knocked back a fair few times and has had to make his own way in the world. Which perhaps explains why he has, despite having made himself a lot of money over the years, retained an instinctive sympathy for the kind of customers for whom the treats in his stores are especially valuable. 'I'm a Lucky Jim, I suppose,' he says, in a rare moment of self-reflection.

That was probably not always true. He was born into a solid, respectable family in the suburbs of Birmingham, one of three sons. His father had been in the army, then worked as a sales rep for Scottish & Newcastle, the brewer. He was as strict with his children as he had been with his men in the army, recalls McCarthy. Despite that, he didn't hesitate to clash with Dad when he needed to. A bright boy, he passed his eleven-plus and went to St Philip's grammar school (which JRR Tolkein attended before the First World War). But he decided to leave school when he was 17, without taking his A Levels, a decision that took a lot of standing up to his dad. 'I could either knuckle down or I could start earning money,' he recalls. 'A couple of my pals were already earning money and having a whale of a time as young lads do and I decided I wanted to do that.'

McCarthy had no real idea where his future lay, nor was 1970s Birmingham exactly alive with exciting career opportunities. As he worked out what to do with his life, he applied for traineeships with M&S, Littlewoods and, rather oddly, the Hong Kong police force. None of them wanted him. He'd already been doing a paper round to earn some spare cash for a local chain of newsagents called Dillons. It offered him a job as a relief manager. It was not exactly the fast track, nor would regional newsagents strike many people as a promising start to a career. But McCarthy was a young man in a hurry. By the age of 18, he was already married, to Rosie, who he'd met at Dillons' Alcester store, and settling down to life as a family man.

As it turned out, he had a natural flair for retailing. And nor were newsagents quite the dead end that many people assumed back then. By the time he was 21, he was a regional manager, looking after 120 stores, and six area managers, most of whom were a lot older than he was, often by a couple of decades.

Still a young man, the company sent him down to the south coast to run a sister chain called Argus and it was there that he stumbled across something that he found very interesting, and which was to power the next phase of his career. People liked convenience. In the early 1980s, most newsagents were still simply places where you could get a paper, some cigarettes, and perhaps a packet of Polo mints. But a few shops, encouraged by the new breed of mostly Asian newsagents, had started selling a far wider range of goods, such as food, drinks, or odds and ends for the house. 'It took me a while to realise it,' recalls McCarthy. 'But when I saw it in practice, I could see that it was a huge opportunity.'

By 1985, McCarthy was a director of Dillons, opening up convenience stores right across the region, and doubling and tripling sales at what had been simply old- fashioned newsagents. The rapidly expanding chain was fast outgrowing the parent group and it was put up for sale. McCarthy himself made an offer, but it was trumped by Next, then in its 1980s hyper-expansion. 'Next said that it wasn't going to buy it unless all the current directors stayed put, so we did,' says McCarthy. 'We were going up the league tables.'

As it turned out, Next ran into trouble, and the business was sold again, this time to T&S Stores, a fast-expanding chain with national ambitions run by Kevin Threlfall. Another West Midlands boy. Threlfall was a natural entrepreneur who had started his empire with a cigarette kiosk in Wolverhampton and went on to create a 1,200-store chain that included the Dillons, Supercigs and One Stop brands. 'The budget sector was made to work by T&S on a national scale,' says McCarthy. 'In a sense, we changed the whole landscape of retailing.' He also learned a huge amount from working alongside Threlfall, one of the most talented players in 1980s and 1990s retailing. 'Up until then I had been quite a severe person. But Kevin taught me how to have fun in business,' he says.

McCarthy was a key member of the team that pushed forward the massive expansion of T&S through the 1990s. The convenience store sector was booming, so much so that it started to attract the attention of the giant supermarkets which had, up until then, mostly ignored it. By 2002, Tesco decided that it could no longer stay out of what was already a big part of the grocery market. In 2002, it bought T&S for more than £500m, laying the foundations for what would become Tesco Express.

McCarthy himself did well out of the deal, and a well-negotiated contract meant Tesco had to pay him even more when he left. He quickly realised there was little place for him at Terry Leahy's expanding empire. 'They offered me Poland to run, and that was when I realised I was not what they had in mind,' says McCarthy. 'So I left. I had a good contract, so I was well paid. But after that I was sitting around at home with not very much to do.'

Leahy probably missed a trick. A hard-working motivator, also from a modest background, McCarthy could have been groomed into a far better successor for Leahy himself than the hapless Phil Clarke who eventually took over at the country's largest retailer. But that wasn't to be. Instead, McCarthy was hitting middle age, with plenty of money but no career. 'I didn't mind that for a while,' he says, 'but eventually Rosie, my wife, said to me: I don't want you getting under my feet all day, so why don't you get out and find a job.'

Despite his impressive track record, McCarthy is not much good at getting jobs. He made several applications, including to Littlewoods and the catering chain Sodexo but got turned down by everyone, much as he had been at 17. 'I was quite depressed about it,' he recalls. 'It is when you don't have a job, and you don't have anything to offer people, that you find out who your friends really are. An analyst called me up, a guy I knew quite well, and he said you need to call some people and see what is available. It is quite embarrassing when you are essentially cold calling people. But I thought, well, if I don't do this I am going to regret it.'

One call he made was to Sainsbury's. Justin King had just been installed to turn around a chain that had been crushed by Tesco and had lost its way. Another fiercely hard- working retailer, McCarthy was a natural ally for King, who gave him the job of looking after its growing convenience store chain while he concentrated on turning around the main supermarkets. Joining in 2004, McCarthy soon found he was playing on a different stage from the shops he had been used to. 'It was the first time I had worked with a real brand,' he said. 'People have a real emotional connection with Sainsbury's.'

Sainsbury's Local made a lot of progress, rolling out stores across the country. For family reasons, however, it was not a long-term job. After joining in 2004, illnesses in both his and his wife's family meant by 2006 McCarthy felt he had to return home to spend more time with the people closest to him. As it turned out, he was not to be idle for long. After resigning amicably from Sainsbury's, Poundland came calling, looking for a new chief executive.

The business had been started by David Dodd and Stephen Smith in 1990 in Burton-on-Trent, with the brilliantly simple idea of selling everything at a single price. It wasn't always a smooth ride. The mall landlords were often reluctant to give them space because they would undercut other retailers. But the concept gradually took hold. By 2006, the chain had grown to 150 stores across the country and, under private equity ownership, McCarthy was chosen as the man to drive it forward. 'I didn't know very much about Poundland when it approached me,' he says. 'I had looked at buying it when I was at T&S, but I didn't really understand the business at that stage. But when I looked at it again, I could see that it had great potential and super people.'

On joining, he initially thought he might have to change it a lot. 'I started out by thinking we should have a 3-2-1 offer - products at £3, £2 and £1,' he says. 'But when I studied it and talked to the customers, it was clear that they really like the clarity of the offer.'

He stuck with the formula and concentrated instead on expanding. In the years since then, the chain has grown and grown. One big boost came with the collapse of Woolworths in the depths of the 2009 recession. Its 800-plus stores across the UK were the natural place on the high street to pop in and pick up small, relatively cheap items and, once it had gone, there was nowhere else quite like that. Poundland is a distinctly different concept, and a more profitable one. And yet, more than many people immediately realise, it has stepped into the Woolies void, and that has helped turbocharge its growth.

Despite inflation and changing VAT rates, it has stuck rigidly to the £1 single price, either absorbing any change in costs itself, or simply passing them onto their suppliers. In 2010, it was sold to another private equity firm, Warburg Pincus, and then in 2014 it was floated on the stock market, in a successful IPO whose shares jumped to an immediate premium. In its last financial year, it had revenues of close on £1bn and profits of £27m. As you might expect, it operates on wafer-thin margins - there is not a huge amount of profit to be made when you sell everything for a quid, but it manages its cash flow effectively and usually comes out ahead.

McCarthy reckons that discount retailing may have started out on the margins but has now moved into the mainstream. 'What Aldi and Lidl have done is fantastic, but it has taken them 25 years to get to the place they are at in the UK,' he says. 'But those chains, Poundland and TK Maxx, have taught consumers that you can get more for less. For us, it is clear that the growth is coming from the AB demographic. We now have a lot of AB customers. We have 90% brand recognition. So this discount sector is now available to everyone and the market has changed.'

The snobbery that stopped people shopping at Poundland is evaporating, he believes. 'It is now a badge of pride,' he says 'Convenience discounting is one of the ways forward. But other things have helped us. Having Duchy biscuits, things that are high quality. So there are lots of things we have done to make it work.' There are plenty of myths about the chain he is quick to dismiss. Nothing is made especially for it, he insists, nor are there unique-to-Poundland smaller sizes. Instead it uses its cash position and buying power to secure bargains from the manufacturers and pass those on.

At some point the Poundland name will become a barrier. There is only so much stuff you can sell for a quid. But he is working on that. 'We have exclusives,' he says. 'We launched a Jane Asher line in Cookware. That is now selling 10 million pieces a year. Ten million. That is 200,000 a week. We have a Tommy Walsh from Ground Force line that we have just launched in DIY.'

As he does on the subject of biscuits, McCarthy talks enthusiastically about the offers in his shops. 'We have top-quality make-up. We were featured on TV and they had twin models on, beautiful girls, and they had one wearing expensive make-up and one wearing ours. The only reason I'm telling this story is because we won. You would have saved 30 quid or something by buying our range. So, we are about amazing value, but we are also about something new and something fresh. And we are still the best-kept secret on the high street.'

Just like any business, there is no shortage of challenges, both short and long term. In the next few months, McCarthy needs to complete the 99p Stores acquisition and integrate the business into the existing Poundland chain. A single penny may not seem a big difference between two companies, but managing a merger, especially one of two successful businesses, each with its own way of doing things, is always going to be hard. He also has to navigate it through the competition authorities, which is likely to mean selling off some of the stores. On a high street where customers are disappearing that won't be easy.

Over the longer term, McCarthy needs to take the concept abroad. The British aren't the only people who like a bargain and find a single price point easy to understand.

Being UK-centric is always going to limit its growth - there are only so many stores it can take. Poundland has already launched in Ireland with the Dealz brand, as well as in Spain. But it can't use quite the same formula - Euroland does not have the same ring to it (people would think it was a currency zone). Nevertheless, McCarthy needs to make a success of at least one other major national market to keep up the company's growth rate - otherwise, sooner or later, it is going to run out of steam.

Thirdly, he needs to take the company online (smaller rival Poundworld, just bought by TPG, is the only substantial discount player offering web sales). Poundland is already planning a web offering and that is where the big growth in retailing is right now. But it will be hard to come up with a winning formula. The delivery costs make it very tough to sell small, cheap items on the internet and, even if you do, you face fierce competition from the likes of Amazon and the thousands of small sellers on eBay. Amazon in particular is not going to let McCarthy tread on its turf without a fight, and the company doesn't care whether it makes money or not.

He is well aware that it will be a tough challenge. 'The economics don't look right for pound products online,' he concedes, acknowledging that the delivery costs can be prohibitive. 'But if you look at companies like DollarTree in the US, it has made it work.' One way forward might be to group products, so that you get, say, glasses for £1 but you have to buy a pack of six. He is already experimenting with that kind of deal in the British shops. 'You have to protect the purity and integrity of the £1 price point,' he says. 'But there are ways around that.'

Indeed there are. The discount retailing space is one of the most innovative markets in the UK right now. It's growing fast and throwing traditional high street giants into crisis. McCarthy is enjoying being in the thick of it and he isn't going to finish any time soon. He has made enough of an impression to be touted as a candidate for every major retailer that needs to be turned around. The bookies had him at 20-1 to take over Morrisons earlier this year. But there is lots still to be done at Poundland, and he is master of his own ship.

'The only way to keep score in life is with the numbers,' he reflects. At Poundland, the numbers are still pretty good. And anyway, by this stage of his career, securing his services elsewhere would cost a lot more than a pound - even in his own stores.


1. Complete the 99p Stores acquisition, and get it through the competition authorities

2. Make the Poundland concept work in at least one other country - and preferably more

3. Build a Poundland business online - that is where the future growth will be


1956: Born in Nuneaton, Warwickshire. Educated at St Philip's grammar school
1973: Joined Dillons, part of the Birmingham Mail Group, as junior
1974: Marries Rosie. They now have two adopted sons
1985: Director of Dillons
1989: Chain sold to T&S Stores
2002: T&S Stores sold to Tesco
2004: Joins Sainsbury's as managing director of convenience (operating
board member and member of investment board and retail board)
2006: Joins Poundland as CEO

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