A single-minded man

A lot of single-price retailers have been developing multiple-price personalities lately.

Not Jim McCarthy. The Poundland CEO understands why rivals 99p Stores and Poundworld have chased bigger margins by launching Discount UK and Family Bargains respectively - the multiple-price format is “seductive”, he admits in an exclusive interview with The Grocer. But basking in what he describes as the retailer’s “best-ever Christmas”, he remains “absolutely wed” to the single price point.

Not that his singlemindedness has done Poundland any harm so far. Since joining the business in 2006 as CEO after a three-year spell as MD at Sainsbury’s, McCarthy has almost quadrupled Poundland’s pre-tax profits, from £5.6m in 2007 to £19.8m in 2010. This year, turnover is forecast to hit £700m, up 10% on 2011, and McCarthy is confident it will hit £1bn by 2014.

He also has high hopes for Dealz, the European fascia launched in September in the Republic of Ireland and in the Isle of Man in December. And his aspirations don’t end there. Other plans in the pipeline include frozen food to go alongside the now established chilled offering, and an online store where, naturally, everything will cost a pound.

It’s an extraordinarily bullish statement of intent, but what others see as Poundland’s weakness is its very strength, believes McCarthy, pointing out that while its price points are fixed, its strategy most definitely isn’t.

“We innovate, we evolve,” he says. “Twenty-one years after the first shop, we are the same price. That’s because we negotiate hard with everyone, we have a very skilled trading team. You wouldn’t believe how much money you can save by challenging, by leveraging. And if not, then we will delist a product. So the range will evolve - but the model stays.”

It’s an uncompromising stance, but McCarthy contends, “if you start planning to go to £1 plus 2 ½p, you’ve lost it”. Instead of manipulating the price point, Poundland will change the pack size. “We take packaging costs down by removing clam packaging to get more units in our containers,” he adds. “We do this all the time, we have to do it. It has become a way of life. We can’t do anything else because it’s a pound!”

Or in its Dealz stores, €1.49 in ireland and £1.20 in the Isle of Man. The first two Irish stores had already trebled to six by December and McCarthy believes there is room for 100 in the Republic. “We put our foot on the accelerator because the reaction to the two stores was so profound,” he says. “Consumer tastes were pretty much aligned to the UK so we didn’t have to change our range too much. They recognise the brands and are used to paying much higher prices.”

Ireland could just be the beginning. McCarthy says the stores were “also a very good test for our systems, adapting to the euro” and that he is now keen to expand into other Continental markets. He accepts mainland Europe will be “much more of a challenge” than Ireland, and explains that any decision will be preceded by a great deal of research. “I wouldn’t put a time on it, or to be so bold as to pinpoint certain countries,” he says. “It revolves about what we can sell, what profit margin we can make and what other people are selling it for. Then we can lay over things like the logistics and the sourcing.”

McCarthy is not unduly fazed by the Eurozone crisis. “The consumer will be under pressure whatever the outcome is and that makes us well placed wherever we go,” he reasons. “The globe is under pressure, I don’t think the currency matters. We concentrate on the consumer, rather than the overall economic position or sovereign debt. The experience of the shopping proposition will be what determines our success. Consumers are very bright. They know what value looks like.”

And for many shoppers in the UK, at least, that’s a round pound. Helped by the deteriorating economic climate, this deceptively simple premise has enabled Poundland to more than double its store numbers since 2006, from 150 to 382. Over the next two years, McCarthy is hoping to add another 100, with a view to one day hitting the 1,000 store mark.

Key to its success will be its brand offer, he says. A third of Poundland’s 3,000-strong range is now made up of household names and that figure will only rise. “The consumer recognises and trusts brands,” explains McCarthy. “Brands also offer a halo effect. People come in to look at the brands and then they see other things as well. And some of our deals are unbelievable.”

On occasion, so unbelievable that Poundland doesn’t need to advertise. Social media spreads the word for it. “Twitter is the biggest but MoneySavingExpert is huge,” says McCarthy, citing the recent example of a golf trolley battery pack that normally retails for £82.

That’s not to say that Poundland won’t run a nationwide advertising campaign when store numbers hit between 450 and 500 “in a couple of years’ time”. For now, though, McCarthy is content to rely on word of mouth - and why not when he’s confident his strategy is as sound as a pound?