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Quids in: how Poundland conquered the British high street

In 1990 it launched as a single shop; this year it posted sales of almost a billion pounds. How did a budget store flogging cheap tat grow so huge?

Pile 'em high, sell 'em low: the chain's winning formula stems from knowing exactly what we need. Photo: Amit Lennon

At the very back of the shop, far behind the stacks of Fairy Liquid and Dettol in the window, and the rows of pet food, confectionery and Tupperware, is Poundland’s book section: a couple of narrow shelves on which a few copies of a Kingsley Amis biography are strategically wedged between The Official Ollie Murs 2014 Annual and a self-help book on coping with childlessness.

In its early years, the whole of Poundland was as weird and wonderful as its bookshelves. But now, although it can still be relied on to stock some odd products (my recent finds include a lime-green bottle of aftershave called “The Edge” and a bag of “man flu” lozenges – the perfect passive-aggressive gift) it increasingly resembles a more conventional grocery or supermarket. The aisles are arranged logically, there’s a small fridge filled with drinks and snacks near the tills, most of the brands are recognisable and twice a shop assistant comes over to ask if he can help me with anything.

Poundland has smartened up its act. Its founder, Steve Smith, who opened the first shop in Burton-on-Trent in 1990 with a £50,000 loan from his father, likes to refer to the chain’s ISE, its “irresistible shopping experience”. You might snigger at the jargon but Poundland’s growth has been impressive. The firm trades through 517 shops across the country, and it plans to expand the number to 1,000. It sold £997.8m of goods in the year to April 2014 and on 12 March began trading on the London Stock Exchange, floating at £750m. How did a budget store in Burton-on-Trent selling (let’s face it) a lot of cheap junk grow so big?

Fixed-price shops and discount retailers have been the winners of the downturn. While sales at the big supermarkets are falling, the German budget stores Aldi and Lidl increased their sales by one-third and 14 per cent, respectively, in the third quarter of last year. Their success is triggering a price war on the high street: in March, Morrisons announced that it would invest £1bn in price cuts over the next three years, and Tesco and Asda quickly followed suit.

In 2008 the likes of Poundworld, 99p Stores and Poundland filled the gap in the market after Woolworths collapsed – and did so often literally, by taking over old Woolworths shops. My local Poundland, on Seven Sisters Road in Holloway, north London, occupies a familiar if depressing landscape, surrounded by empty lots, pawnbrokers and betting shops and standing opposite the distinctly scruffier MightyPound. (I went into MightyPound with the intention of interviewing a few customers for this article, but when I tried to snap a picture of a plastic handbag emblazoned with the friendly slogan “Keep calm and f*** off”, lying next to some furry toilet seat covers, a shop assistant barked, “No photos!” and ejected me.)

I can’t imagine this kind of customer service at Poundland. One intriguing aspect of the chain’s growth has been its success in attracting more affluent, middle-class shoppers. A friend of mine, a secondary school teacher, is obsessed with the place. “Guess where I got this?” she’ll say gleefully, waving a spiky plastic ball designed to stop clothes sticking together in the tumble dryer. The company boasts that a quarter of its shoppers are from the AB social group, broadly defined as those working in administrative and professional roles, or in mid-level management and above. Its most profitable stores are located in wealthier towns, such as Cambridge, Stratford-upon-Avon, Guildford and Bath.

We’re all becoming much less snobby about discount retailers. According to the research group Kantar, half of Britain now shops at Aldi and Lidl. They’re deliberately catering to middle-class tastes: at Christmas, Aldi sold lobsters for £5.99, award-winning champagne for £10 and cheap Serrano ham. With standards of living still below 2008 levels, middle-class shoppers are being more open-minded about where they buy.

Poundland doesn’t sell any £1 lobster or champagne – which is probably a good thing (I was not convinced by its faux-European champagne truffles) – but it has fought doggedly to gain social acceptance, among shoppers and mainstream brands alike, as Steve Smith tells me when we speak on the phone. His original business idea was inspired by his memories of helping out on his father’s market stall. His father kept a box on the stall for products with damaged packaging, all priced at 10p, and often that box made more money than anything else. This insight into the psychological power of fixed-price retail, married with the launch of the new £1 coin and his father’s decision to sell his cash-and-carry business and move to Majorca, lies behind his move in April 1990 to set up Poundland. When the first shop opened eight months later, it made £13,000 on the first day of trading. But Smith understood that these sales could be maintained only if he could encourage big brands to supply him with the goods to stock his shelves.

Smith says he faithfully attended buying shows for three years, but the sales representatives for major brands refused to meet him: they weren’t interested in filling the shelves of somewhere as low-market as Poundland. Eventually, he recalls, he “got a bit mad” at the stand for WD-40, the lubricant oil, and found himself agreeing to a price so high that Poundland would lose 3p on every can of the product sold. It flew off the shelves, and when WD-40 realised that Poundland had grown into one of its largest global retailers Smith was able to bargain down the price. He went on to strike a deal with Cadbury, and soon other big brands followed.

Poundland’s stock buyers are shrewd negotiators: not only are they able to bargain down prices, but they frequently talk companies into selling their product in odd-sized packages to keep the retail price under £1. While loaves of Warburtons bread sell at Tesco and Sainsbury’s in either 400 gram or 800 gram packages, Poundland stocks 600 gram loaves. Mainstream supermarkets sell Walkers crisps in multipacks of six or 12 but Poundland sells five-packs.

It also helps that these deals are seen as a useful way for companies to shift excess stock, which explains some of Poundland’s more unusual products: Smith cites among his victories the time he sold £1 golf clubs and a £1 six-foot desk. You might not think there’s much room for profit if you’re pricing everything for a pound, but Poundland makes bigger margins on its goods than higher-cost supermarkets. According to Kantar’s figures, Poundland averages a 36.9 per cent margin on its goods, compared to 25.7 per cent at Tesco and 24.5 per cent at both Sainsbury’s and Morrisons. “They negotiate really hard . . . they are ruthless,” says Simon Johnstone, an analyst at Kantar. No matter how great a bargain you think you’ve found on its shelves, the chances are that Poundland struck a bigger one.

Smith has benefited from the firm’s tough negotiating. He sold his business to the private equity firm Advent for £50m in 2002 (another private equity firm, Warburg Pincus, bought a majority share eight years later for £200m). Today, the 52-year-old, who has the broad physique and close-cut crop of a club bouncer, owns a 50-acre estate in Shropshire, complete with helipad and pet llamas. Does he still shop at Poundland? There’s a pause. “Yes, of course.” What does he buy there? Another pause. “Batteries . . . my wife bought some batteries there the other day.” Even Britney Spears shops at Poundland, he reminds me: she apparently visited the shop in October to stock up on matches. “They’re, like, the tiniest matches you’ve ever seen . . . they’re so cute,” the pop star told the chat-show host Alan Carr.

Discount retail in the UK is a profitable business: of the 1,000 people on the 2014 Sunday Times Rich List, those who made a fortune in this sector include Galen and Hilary Weston (who ran discount stores before buying up Selfridges in the UK, and are now worth £5.75bn); the Sports Direct founder, Mike Ashley (£3.75bn); and the Home Bargains founder, Tom Morris (£2bn). Many of them, like Smith, built their business from nothing and so have first-hand understanding of their cash-conscious customer base. Chris Edwards, who founded Poundworld, started out working on his parents’ market stall. The Lalanis, who launched 99p Stores, are first-generation Asian immigrants from Tanzania who moved to London in the 1970s after running a cash-and-carry near Lake Victoria. Even the current chief executive of Poundland is a self-made man. Jim McCarthy is the son of a window cleaner. He grew up in a council house in a Warwickshire mining village and rose through the ranks after joining Dillons Newsagents as a retail trainee aged 17.

McCarthy and the rest of the senior management at Poundland own 25 per cent of the firm, so they will have profited considerably from the flotation. What the sale of shares will mean for its shareholders and customers is a little harder to pin down. Was the decision by Warburg Pincus (which owned 75 per cent of the company) to take it public motivated by a desire to cash out while Poundland profits are at their peak? When the economy recovers, will middle-class shoppers retreat to the genteel, clutter-free aisles of Waitrose?

Weathering an economic recovery is, perversely, the first of Poundland’s three big challenges. The second is how to keep its products under £1, as each year of inflation puts more pressure on pricing. Finally it needs to compete in an increasingly crowded discount market: how much should Poundland fear Aldi, Lidl and even the 99p and 98p shops?

Unsurprisingly, the press team at Poundland brushed off my suggestion that shoppers might turn away as the economy improves. Perhaps they are right: all those Guardian articles promoting thrift, with their generous use of irritating terms such as “recessionista” and “credit crunch chic”, might have helped make it cool to be cheap. Hipsters now wear their charity shop purchases with pride, and self-consciously trendy restaurants serve foraged food and promote “head-to-tail” dining. Even the UK’s historic luxury stores want in on the trend. Fortnum & Mason, the London department store known for its overpriced preserves, fine wines and teas in Victoriana packaging, holds an annual Food and Drink Awards; last year it offered a special judges’ prize to Jack Monroe, who launched a popular food blog by posting low-cost, healthy recipes while struggling to feed her family on benefits.

Poundland declined an interview but agreed to answer questions by email, saying that consumer habits are “sticky and once customers experience the value on offer they are likely to keep coming back, even as the economy improves”. Perhaps, however, thriftiness will prove a fad. Simon Johnstone at Kantar said that, to hedge against a rise in disposable incomes, Poundland was investing in better-looking outlets and a wider range of groceries.

Alongside new lines of Poundland sandwiches and milk, you can expect more unusual packaging as the company struggles with changes in the economic climate. “Looking at the market in the United States, where the single-price dollar stores have been growing profitably for the past 60 years, we are confident that we can continue to manage inflationary pressures effectively for decades to come,” the company said in its statement. And yet, if you do cast your gaze on America, this year both McDonald’s and the fast-food chain Wendy’s have dropped their dollar menu, and a number of dollar stores have scrapped their fixed-price policy. At some point Poundland, too, will have to reconsider its “Yes! Everything’s £1!” slogan – or else sell single digestive biscuits and thimbles of Fairy Liquid.

But undoubtedly the biggest challenge will be to keep up with the competition. Determined bargain-hunters have never had more choice. A 2012 Channel 4 Dispatches documentary, Secrets of Poundland, exposed how the size of the firm’s packaging has shrunk over the years, how packets are labelled with offers such as “50% extra free” to convince shoppers they are getting value for money, and how some of its own-brand goods are of poor quality – yet the creative labelling appears to have had little effect on sales.

Many Poundland shoppers are too canny to be hoodwinked by the £1 label. The shoppers I chatted to at Poundland in Holloway weren’t mindlessly filling up their baskets with junk. Some, like Paul, who has been out of work for several years with a “gammy leg”, meticulously research the offers at their local discount shops. He recited the prices for two litres of milk from five local supermarkets (perhaps it’s not enough now to ask politicians to state the price of a pint of milk; a surer sign of the common touch would be an MP being able to recite the price of milk from several stores) and told me that today he’d buy his dog food at Poundland but milk at Morrisons. Robin, a retired former Tube driver, had visited all of his local pound shops in the past few days. “That’s what the government is telling us to do, to shop around,” he said. Poundland doesn’t only have to contend with price-cutting competitors, it needs to retain customers with little sense of brand loyalty who are willing to hunt around for a bargain.

As well as colonising the high street, pound shops are moving online. In February, Steve Smith launched his latest venture, in partnership with his former rival Poundworld, called poundshop.com – a garish orange website selling anything from £1 bras to baby rattles. He says the website is so popular that when it launched it crashed because of the high volume of web traffic. Within hours, 30,000 people had registered to use the site and Smith had made sales of £12,000. Once he begins reading out emails he has received from grateful online shoppers (“Thank God, we can’t carry all that stuff back on the bus, now we can!”) he is temporarily unstoppable. A week earlier, hereforapound.com also launched. It remains to be seen how well they do on the web in the long term – you’re less likely to impulse-buy an armful of cheap things when you’re sitting at your laptop – but the move suggests that they are increasingly catering to everyday shoppers rather than the bottom of the market.

Pound shops might be an eyesore on Britain’s high streets, yet unlike betting shops or pawnbrokers, their expansion could be a good thing for consumers: never before has the discount market been quite so intensely competitive. And although that bizarre bookshelf in Holloway seems a relic of the old Poundland, before private equity funding helped turn its quirky, cluttered stores into a relatively sleek operation, it also reflects the range of customers the shop now attracts.

Which means that even though Poundland is becoming increasingly common on high streets, it remains an unusual place. Where else will you find the long-term unemployed and overworked management consultants, fashion students and science teachers, diehard bargain-hunters and curious yummy mummies rubbing shoulders as they jostle for that final out-of-season chocolate Santa, ten-pack of Space Raiders or giant pot of penny sweets?

Sophie McBain is a freelance writer based in Cairo. She was previously an assistant editor at the New Statesman.

This article first appeared in the 21 May 2014 issue of the New Statesman, Peak Ukip

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Roy Hattersley: Labour is far closer to extinction now than in the 1980s

 If the takeover of the party by the far-left succeeds there will be no opportunity to rescue it from the wilder shores of socialism, says the former deputy leader.

The comparison with the Eighties is irresistible but misconceived. Labour is far closer to extinction as a major party than it was 35 years ago. That is not because Jeremy Corbyn is incapable of leading the party to victory — although he is. Nor is it because his supporters threaten the political assassination of anyone who says so — although they do. It is because, for the first time in its history, Labour is in real danger of a permanent domination by the unrepresentative and unelectable left.

All the other regular crises in the party’s history — German rearmament, nuclear disarmament, the defection of the Gang of Four to found the SPD — were resolved by mistakes being rectified, resolutions reversed and Labour resuming its place in the mainstream of British politics. Nor was there any genuine risk that the infiltrators from the far left would play a decisive part in national policy making. The Militant Tendency controlled municipal politics in Liverpool and attempted, with mixed success, to unseat vulnerable mainstream MP’s. But there was no possibility of them subverting the whole party. Now the far left operating through Momentum  aspires to make a decisive, and irreversible shift in Labour’s core ideology by initiating a purge of mainstream Labour MPs and a cull of headquarters office staff, reducing the part that the parliamentary party plays in choosing the leader and making the election manifesto the preserve of the annual conference. If the putsch — described by its instigators as an extension of party democracy — succeeds, there will be no opportunity for a latter day Neil Kinnock to rescue Labour from the wilder shores of socialism and the odds on its survival lengthen.

The crisis could have been averted. The parliamentary party  with the exception of a handful of residual Blairites  is ready for some sort of compromise. That is why, three weeks ago, it gave its overwhelming support to the proposal that the shadow cabinet should be elected by Labour MPs rather than chosen by the leader. The change was intended to allow an honourable return to the front bench for the shadow ministers who resigned in the spring. As a move towards unity, it is no more than papering over the cracks but better that than gaping fractures. Although Corbyn had neither the sense nor the grace immediately to accept the gesture of conciliation, the choice between an uneasy peace and continued guerrilla warfare still lies with him. If — as his victory speech suggests — he regards last Saturday’s victory as a mandate to impose his sectarian will on the party, the battle is likely end with mutual self-destruction.

Even if Jeremy Corbin succeeds in his attempts to create a permanent far-left hegemony, the Labour Party is unlikely to split as it did 30 years ago . The fate of the SDP — absorption into a Liberal Party which kept the Tory-led coalition in office or defiant independence that ended in the ignominy of polling fewer by-election votes than the Monster Raving Loony Party — has dampened enthusiasm for a breakaway movement. Nor are there charismatic potential leaders who stand ready to lead their followers into battle in the way that Roy Jenkins and David Owen (the Fidel Castro and Che Guevara of social democracy) marched a dozen Labour MPs into the valley of political death. But a futile attempt to form a new party would at least imply the hope of some sort ofresurrection. The more likely outcome would be the product of pure despair — the parliamentary Labour party would not divide and instead would begin slowly to disintegrate.

If the worst happens some Labour MPs will suddenly discover previously undetected virtues in Corbyn and Corbynism and line up behind him. Others will grow weary of being abused by local extremists and fade away. Contrary to public opinion, most MPs could earn more from less demanding jobs outside parliament. The politically dedicated, determined to be candidates in the next election, will accept the challenge of reselection. More will succeed than fail, but the harm to the party’s reputation will be immense.

One feature of the 1980 desertion will certainly be replicated. When the Gang of Four defected, the damage done by the loss of glamorous leadership was more than matched by the loss of hard working membership. If Labour MPs begin to believe that the battle for reason and recovery is no longer worth fighting the disenchantment will become infectious. Jeremy Corbyn’s devotees would still turn out for the rallies. But the enthusiasm with which they would tramp the streets on rainy nights, or spend boring weekends telephoning target voters, is in doubt. Reliance on the notion that the election can be won online is the refuge of politicians who either have not identified or do not understand the floating voters.

The haemorrhage has already begun — increased by the behaviour of recently recruited Corbynites who do not seem to have heard that their hero has an olive tree outside his office door. All over the country they are bullying and filibustering their way into the control of local parties — excoriating mainstream members, manipulating the rules of debate and postponing votes until late in the evening. Of course, the men and women who oppose them could play the same game. But they are, by their nature, reasonable people and they want to lead reasonable lives. That is why they represent the sort of Labour Party with which voters can identify. 

Unfortunately, many of the Labour MPs who should have led the campaign to recreate an electable party have spent the last year either sulking or complaining. They have been anti Corbyn but pro very little. Owen Smith’s leadership campaign ended in disaster not because of the size of the incumbent’s votes but because of the challenger’s failure to set out an alternative vision of the society that socialists hope to create. Angela Eagle would have won fewer votes, but she would come closer to reassuring party members that "moderates" (a deadening description which should be abandoned) have principles and policies. A campaign that relied on nothing except the obvious truth that Jeremy Corbyn would lead Labour to defeat was doomed from the start. A majority of the party members who joined before 2015 voted for Smith. Think of how many more would have done the same had he offered them more to vote for than disapproval of his opponent.

Corbyn, and many of the Corbynites, are unmoved by the evidence that they are heading straight to defeat. That is, in part, because Corbyn himself is in what psychiatrists call “total denial.” There were times last year when he seemed to be implementing a carefully coordinated plan to alienate all the middle-of-road voters on whose support a Labour victory depends. He has proposed the unilateral abandonment of the British nuclear deterrent, refused to back Britain’s continued membership of the European Single Market and defended his historic association with apologists for terrorism — all items on the curriculum vitae of a Labour leader who might have been invented by Conservative Central Office. No political leader in British history has been so careless about his party’s prospects at the ballot box. But that is only one of the reasons why the threat of defeat will do little to halt the party's leftward gallop.

There is, within the ranks of Corbyn supporters, a substantial number of activists who — since they do not believe that parliamentary democracy can create the socialist Utopia of their dreams — regard the election of a Labour Government as an irrelevance. Indeed they believe that a prolonged period of Tory misrule will bring forward the day when a spontaneous uprising will herald the new dawn. It is near to inconceivable that Corbyn believes in such millenarian nonsense. But he appear to subscribe to the equally fatuous view that the first task is to make Labour a genuinely socialist party and that winning elections can wait until it is accomplished.

That is clearly the view of those correspondents to the New Statesman who complain about Corbyn’s critics obsession with what they call “electablity”. It is easy for their cynics to sneer about putting power before principle, but winning is a matter of principle too. Labour exists to make those changes in society which can only be achieved in power. In 2016 the fight — to quote the former Labour leader Hugh Gaitskell in 1962 — is less about saving “the party we love” than about rescuing the nation from long years of  Tory bigotry. To behave in a way which diminishes — indeed for a time extinguishes — Labour’s chance of fulfilling its historic purpose is worse than self indulgent. It is betrayal.

There are major figures in the current drama of the Labour Party whose attitude towards the prospect of government is both inexcusable and incomprehensible. Chief among them is Len McCluskey, the general secretary of Unite and a man whose every bombastic television appearance is worth thousands of votes to the Tories. The members he represents have the strongest possible vested interest in a Labour victory at the next election. Yet many of his policies and pronouncements — particularly his risibly unsuccessful attempts to bully MPs into supporting Jeremy Corbyn’s leadership — contribute to the Conservatives’ opinion poll lead and increases the danger of massive defeat at the next election turning into total destruction.

Anyone who doubts that Labour could be reduced to the status of the Liberal Democrats or the Greens — struggling for influence without even hoping for power — should be sent to canvas for the party in Scotland. But the near oblivion north of the border is not yet inevitable in the south. Recovery will take time and before Labour can begin effectively to deal with the challenges from outside the party it must struggle back into the mainstream of politics — a process which has to begin with an acceptance that Jeremy Corbyn’s first election was more than a combination of the Peasants’ Revolt and the Children’s Crusade. For many of the men and women who voted for the first time in 2015 his victory represented the end of a decade of disillusion. At first they had felt no more than disappointment at opportunities that successive Blair Governments missed — their delight in the landslide victory of 1997 fading away until it was finally extinguished on the battlefields of Iraq.

The Peak District village in which I live is home to more Labour party members than the tourists may imagine. Two of them  —  a retired bank manager and an emeritus professor of cardiac surgery — voted for Corbyn in 2015. In part they were motivated by a desire to “give socialism a chance for once.” But they also thought that they were drawing a line under the years of “the third way” and triangulation. New Labour, in which they had once devoutly believed, had come to mean private enterprise edging its way into the health service, the surreptitious extension of secondary selection and light regulation of the City of London. Jeremy Corbyn, like the Scottish National Party, has much to thank Tony Blair for.

For some people Jeremy Corbyn was, like Donald Trump and Marine LePen, a welcome alternative to the politics of the establishment. To many more he was, by the very nature of his unelectability, the antidote to the opportunism which they (wrongly) believe characterises life in Westminster. Now, a mainstream candidate for the Labour leadership will have to make clear that they are guided not by opinion polls but by a vision of a new and better society. The next leader must concentrate every nerve and sinew on winning, but they must have faith in their ability to carry the country for reasonable revolution.

Unfortunately the members of the Labour mainstream are notoriously reticent about  discussing first principles. They find talk of “the vision thing” embarrassing and believe that the task which faces them is too obvious to need justification by any “fancy theories.” Yet there is a great body of work — by the likes of TH Green, RH Tawney. Anthony Crosland and John Rawls — which set out the theory of democratic socialism and descriptions of why it is especially relevant today – Joseph E Stiglitz’s The Price of Inequality and The Spirit Level by Richard Wilkinson and Kate Pickett — abound. The recovery of reason has to begin with Chukka Umuuna explaining the virtues of equality, Yvette Cooper describing Britain’s obligations to the developing world and Dan Jarvis defining the role of the state in protecting the weak against the strong. Or any of them talking about what they stand for instead of assuming that their convictions are taken for granted. The Daily Mail might not report their speeches, but moderate party members will treat the related Fabian Society pamphlets like water in the desert.

If, as they must, the reasonable majority of Labour MPs choose to stay and fight, they have to organise — inside the parliamentary party and, more importantly in the constituencies. I have spent much recent time insisting, to sceptical friends that the occupants of the opposition back benches are as competent and committed as were members of any of the governments, or shadow governments, in which I served. But I do not even try to argue that they are as active as my contemporaries once were in reclaiming the party. Success and survival depends on the constant demonstration that reasonable radicals still have a home in the Labour Party.  

One refugee from Corbyn’s original shadow cabinet assured me that like-minded Labour MPs do occasionally meet. When I asked what they discussed, I was told that they “wait for something to turn up.” But, something will only turn up if it is prepared and promoted by the men and women who have the courage and commitment to lead Labour out of the wilderness. The journey will be long and hard and there can be no guarantee of arrival at the desired destination. But those of us who believe that Labour can still provide the best prospect of a more equal society have to begin the trek toward the promised land — and we need to set out straight away.

Roy Hattersley was deputy leader of the Labour Party from 1983 to 1992.