Credit: Martin Pettitt

Poundland smashes £1bn mark but CMA investigation looms

The discount retailer is soaring but its merger with 99p Stores is under threat.

by Jack Torrance
Last Updated: 18 Jun 2015

Poundland is flying. Today it announced it has passed the £1bn annual revenues mark for the first time ever, with sales up 11.4% in the year to 29 March to £1.1bn. That presumably means it's sold 1.1 billion items of stock, no mean feat for any retailer.

The company’s empire continues to grow – its opened 130 stores in the past two years, taking its total to 547 in the UK and 41 in Ireland. It said it expects underlying pre-tax profits in the last year to be in line with market expectations, which analysts have said should be around £44m.

‘Despite tough trading conditions, Poundland continues to perform well and we served an average of 5.3 million shoppers a week during the quarter,’ said its chief exec Jim McCarthy. ‘We expect to continue to deliver our growth strategy in the new financial year, notwithstanding some headwinds from a weaker Euro and a tough comparable in the first half.’

Passing £1bn in sales for the first time should be a moment of celebration for Poundland, but McCarthy is unlikely to have much time to be popping champagne corks today. That’s because the UK’s biggest ‘single-price retailer’ is facing a possible investigation from the Competition and Markets Authority (CMA) over its planned £55m takeover of rival chain 99p Stores.   

The CMA says it will conduct an in-depth investigation of the deal unless Poundland offers ‘acceptable undertakings.’ The quango believes, ‘the transaction gives rise to a realistic prospect of a substantial lessening of competition in 80 local areas where the companies currently overlap.’

This seems like an overreaction from the CMA. Poundland and 99 Stores face competition not just from each other and other discount stores, but also from other retailers in general. They don’t sell anything unique or have monopolies over any particular town’s high street. But when you create a regulator it’s always going to be on the lookout for something to keep itself busy.  

‘After the transaction, Poundland will no longer face competition from its closest rival, and following our initial investigation, it is unclear whether the constraint posed by remaining retailers is sufficiently strong to mitigate our concerns over how the transaction might affect choice, value and service for shoppers,’ said the CMA’s senior director of mergers Sheldon Mills. ‘Without competition from 99p Stores, there is the possibility that Poundland may have the incentive and ability to deteriorate its offer [yuck} in these areas to the disadvantage of customers that have come to rely on their offer.’

It’s not clear exactly what ‘undertakings’ are likely to be ‘acceptable’ to the CMA – perhaps a guarantee they won’t raise their prices to £1.01?  McCarthy and his counterpart at 99p Stores are likely scrambling to come up with an answer ahead of Thursday’s CMA deadline. The Poundland party will have to wait.

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