Poundland: who would buy it and what would they do?

It might have spent years freeing itself from the constraints of selling everything for £1, but now, in a cruel twist, one possible prospect facing Poundland is being sold for £1. That’s the figure some think Poundland owner Pepco Group may accept, after last week’s confirmation the UK discount chain is up for sale.

“Some analysts are suggesting Poundland could be available for sale for £1, although there would then be lease costs and other potential liabilities on top of that nominal purchase price,” says AJ Bell investment director Russ Mould.

So what would a sale involve? Which elements of Poundland’s varied estate could be shed? And given the warning of Poundland’s continued underperformance across “all categories”, alongside looming budget tax pressure from April, who would be interested?

Warsaw-listed Pepco Group’s announcement followed four successive quarters of weak trading at Poundland, linked to a disastrous transition to sourcing clothing and general merchandise at group level.

“It has become clear over the last 12 months that this integration has not delivered for customers or shareholders,” the group admitted.

A fuller picture emerged this week, as The Telegraph reported Teneo had been appointed as an advisor to oversee the sale, “potentially putting scores of high street stores at risk of closure”.

Analysts agree store closures are possible, if not likely. Based on performance alone, larger sites are particularly vulnerable. Poundland has 784 UK stores, according to location data specialists CACI. High street units only make up a portion, with sizeable chunks also in suburban local parades or retail parks (see graph below).

In its full-year results to 30 September 2024, the group said larger stores, including some former Wilko sites acquired in 2023, “are not where Poundland delivers best performance”. The new focus would be units of around 7,500 sq ft, “which is optimal for the offer”, it added.

But the problem may be down to the proposition more than store size, says Third Bridge senior analyst Orwa Mohamad. He believes “some of Poundland’s struggles in larger retail park stores stem from a weakened product assortment driven by Pepco’s strategy”.

That strategy has involved turning over a large portion of the shop floor in all stores to a Pepco clothing range that has failed to appeal to UK shoppers.

“Take out clothing and what on earth do they put there?” asks Shore Capital’s Clive Black. “Is there an expectation that a new owner will have a commercial agreement with Pepco to provide clothes, because a lot of space has gone into it?”

Black believes stores are likely to be judged “case by case”, and getting the size right will depend first on getting the range right.

It doesn’t help that moving to non-food sourcing through Pepco “meant hollowing out the UK buying team, meaning there wasn’t enough UK customer-focused product to fill stores with”, says a City source.

It also meant losing “years of heritage of how to buy single £1 product”, says Black.

Poundland’s latest turnaround strategy has involved telling shoppers it is still ‘home of the pound’, and increasing the number of lines priced at £1 or less. But there are doubts over the sustainability of such a narrow approach.

“Inflation over the past four or five years has required more flexibility in Poundland’s pricing,” says Black. “They’ve been moving into other bargain stores’ territory by having multi-price product and through necessity losing their distinctiveness.”

Chris Edwards Sr, founder of Poundworld and now chair of discount chain One Beyond, says: “If I went to my son [One Beyond CEO Chris Edwards Jr] and said, right, I want to go back to our roots at £1, I think he’d pull his hair out.

“We still have quite a lot of stuff for the pound, but it’s very cherry-picked to make it look like good value for money.”

Edwards believes other price points are valid as long as “the value is obvious”.

Black agrees: “Poundland is going to have less and less to go for at £1, but can you offer exceptional value at £2, at £3, and so forth, and keep it really focused and simple?”

It’s a strategy Poundland began pursuing in 2017, when it transitioned to calling itself a ‘simple price’ retailer.

But it won’t be easy for a buyer to turn back the clock to its better-performing days.

The Williams effect

One piece of good news for Poundland came in Pepco making Barry Williams the UK chain’s permanent MD, following his appointment to the role on an interim basis in January.

Williams previously served as Poundland MD from 2017 to 2023. He only moved away to address flagging sales at sister retailer Pepco – so now returns with plenty of turnaround experience.

“I wouldn’t underestimate what Barry Williams can do to help now he’s back in charge, but the business is in a strategic bind,” says independent retail analyst Nick Bubb.

Black wonders: “Will [a buyer] invest in price or gross margin to become more competitive, set against structural increases in operating expenses? This is not an easy gig. Poundland is no longer an immature business. It doesn’t have the rollout economics, the positive operational gearing that comes from opening new stores and diluting central overheads.” Neither is it “an inefficient business” with obvious cost savings, he says.

Read more:

• Poundland owner appoints advisors to oversee sale of the discount chain

• Even Poundland is struggling. What now for the UK high street?

• Permanent Poundland MD named as Pepco ‘explores’ sale

• Poundland: what’s gone wrong and what can it do to fix it?

• Poundland’s theft clampdown was hinted at in its results. What else is on the way?

Mould says: “According to the last annual results, Poundland generated €2bn of sales but last week’s capital markets day presentation said it lost €3m at the operating level, including leasing costs. The first thing, therefore, that Poundland can do to make itself more attractive is make more (or some) money.”

Pepco CEO Stephan Borchert told reporters there were already interested parties but “we don’t know what type of buyer they are”, notes Bubb.

“Having absorbed Wilko, it would be surprising if trade rivals had much appetite, and I think the danger is it attracts scavenger funds like Hilco, who want to buy it for nothing, do a ‘pre-pack’ to shed the worst units and then run it for cash.”

Mould believes private equity might take a look. “It is reportedly still cash rich, even if wider volatility means it is proving harder than before to effect smooth exits from purchases and realise gains on their initial investment. The possibility that Boots may also be put up for sale at some stage by its new owner, Sycamore, could also muddy the picture.”

Black says: “I imagine a lot of people will look at the brief, from supermarkets and other retailers to private equity and maybe some distress funds. But the number wanting to take it forward will be very small.”