Poundland has undoubtedly been a big success story of the recession: the discount retailer saw revenues jump by around a quarter to more than £500m in the year to March, as cash-strapped punters looked to cut down on their shopping bills. And it’s now become a huge money-spinner for private equity owner Advent International: having bought the chain for £50m back in 2002, it’s just flogged it for a juicy £200m. Thrift’s big business in a recession, so it’s easy to see why Advent has chosen to cash in now. But will its cheap and cheerful charms remain attractive as the economy recovers? Or is its new owner just assuming (not unreasonably) that we’ll all be skint for a long while yet?
Poundland may pride itself on its value offering, but it’s certainly been a premium investment for Advent. Since it put in £50m as part of a management buyout eight years ago, Poundland’s empire has grown from 70 to about 260 stores, making it the biggest chain of its type in the UK; three million of us now use it to stock up on ludicrously cheap detergents, giant chocolate bars and bright pink feather boas (or maybe that’s just us).
Now Warburg Pincus, another PE firm, has seemingly jumped at the chance to take it off Advent’s hands. It’s predicting revenues of some £700m for Poundland in 2011, and clearly thinks there’s lots of room for growth: it will open another 50 stores this year (creating 2,000 jobs), while Poundland boss Jim McCarthy has previously talked about ending up with over 600 stores nationwide. So you can see why they thought that £200m price tag was worth paying.
The big question, though, is whether Poundland can keep up its current growth rate now we’re (kind of) out of recession. In essence pound shops are a funny idea: not many retailers have a built-in mechanism that forces prices down below the level of inflation every year. But thrift has got trendy in the last year: people who wouldn’t have been seen dead in a pound shop now see it as a badge of honour to be spending their hard-earned cash there.
Presumably Warburg Pincus is hoping that one of two things happen: one, that all these new customers are so wowed by the value they’re getting that they’ll keep coming even when things improve. Or alternatively, that the recovery will be so feeble, and that the imminent tax hikes will be so painful, that we’ll probably all be watching our pennies for years to come. Our money’s on the latter (only a pound, mind).
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