Pounding way out of recession

Poundworld, which began as a stall in Wakefield Market in 1964, has already grown to a chain of 105 stores and is now increasing the pace with a rapid expansion plan.

The firm, currently based in Birstall, is moving into new headquarters at Normanton Industrial Estate in the New Year and plans to open a further 45 stores and hit a 200m turnover in 2011.

Love them or loathe them, pound shops are reshaping the retail industry as they fill the void left by the demise of retailers such as Woolworths.

"Pound shops offer fantastic value for money so landlords all want our kind of operation," said Poundworld's managing director Chris Edwards.

"We're getting more and more opportunities for properties so while it's there we want to expand as quickly as we can."

He added: "Three years ago we realised that more people were coming into Poundworld due to the recession and there was an opportunity to expand. We upgraded our brand and we realised we were becoming more attractive to landlords, particularly in shopping malls."

The number of pound shops on the UK's high streets has almost doubled in the last 10 years, according to research from Experian.

Prior to 2010 Poundworld, which currently has a turnover of 145m, had opened a maximum of 12 shops in a year. Last year it opened 27 shops and by 2015 it aims to have 250 stores across the country taking its staff from 2,700 to 3,700.

Nigel Bullas, managing partner of accountancy firm Clough & Co, which works with Poundworld, said: "Shops like Poundworld bring traffic back to the town centres which have been devastated by the big shopping malls and the recession."

The expansion is being funded by cash reserves from the company itself plus lending from its banks, although it is also looking for longer term funding and outside investment.

The rise in the number of pound shops reflects the broadening appeal of budget shopping as shoppers' purses continue to be squeezed.

"We're seeing a massive increase in the middle market," said Mr Edwards. "We've noticed now that pound shops have become fashionable. People don't want to brag how much they've spent on something expensive any more they want to brag about how cheap it is."

Some of the shops which have given way to places like Poundworld are independent traders who have struggled to compete in such a competitive environment.

Mr Edwards said: "The strong are getting stronger and the weak are being knocked out. We do end up knocking some independent shops out but we don't set out to get rid of people, we just do our thing."

One of the challenges with running a store like Poundworld is that prices cannot change when costs increase and with the rise in VAT, margins are being squeezed more than ever.

"You've got to be aggressive with your cost price and we work on it every day," said Mr Edwards. "We're expecting our suppliers to share the burden with us. Overall, some will concede, some won't and some will meet us half way."

Another way of dealing with cost rises is by altering the value of a product. "Instead of offering a packet of eight pencils for 1, we might offer six pencils instead," said Mr Edwards.

The company imports about 60 per cent of its stock from overseas – mainly from China. It has a product-sourcing office in Shanghai and a distribution centre in Hong Kong where the goods are packaged with Poundworld's branding and shipped to the UK. Other stock comes from UK brands like Cadbury, Colgate, Coca Cola, Johnsons, Schweppes.

Buying stock from overseas opens up currency risks, which is a problem because prices cannot rise to make up for currency fluctuations. However, Poundworld, like its competitors, buys dollars in advance to try to secure the best deal and have the certainty of paying one price.

The company's shelves are stocked with more than 3,500 individually sourced product lines covering categories such as food and drink, stationery, hardware, tools, pet toys, seasonal, textiles, household and medical.

It is also increasing its convenience offering. "We've become more of a destination shop rather than people calling in and just having a look," said Mr Edwards. "The average spend-per-basket is rising all the time."

In out-of-town retail parks customers spend an average of 7.50 against about 4.50 in town centres.

Poundworld infuriated environmentalists in September by buying Polo mints from Indonesia rather than the Nestle factory in York. The company defended the arrangement, stating it was the cheapest way to purchase the goods, allowing them to provide "better value" for their customers.

Mr Edwards said: "We're concerned about the green agenda as much as business will allow us to but you've got to run alongside commercial sense as well and it's very competitive."

'Easy to beat supermarkets on price'

Poundworld's managing director Chris Edwards left school at the age of 15 to work on his parents' stall at Wakefield Market.

Three years later he took over the business and in 1974 he and his brother, Laurie, opened their first shop, trading under the name Bargain Centre. The business was re-branded Everything's 1 in 1997 and it became Poundworld in 2004.

"We used to be a multi-price business but in 1997 we realised people were moving away from discount operations because they had more money in their pockets," said Mr Edwards. "We identified the pound shop game could be okay because there was a point of differentiation.

"Supermarkets were becoming more dominant so this was a more specialist market. What we've realised is how easy it is to beat supermarkets on price."

Poundworld, which currently operates out of three warehouses on one site, has already begun the relocation to its new distribution centre and is due to complete the move by the end of March, which will double the number of pallet spaces to 30,000 and create up to 100 new jobs.

The headquarters includes a showroom for its stock, which forms part of its wholesale operation supplying mostly small retailers who do not have direct access to the Far East. "We're careful who we supply to because it could obviously turn into a competitor," said Mr Edwards. "We discuss it with them and if they're not in one of the towns where we are then we'll supply them."

In 2010, the company went back to its roots by opening a new multi-price shop at the St John's Centre in Leeds under the brand name Discount UK. Mr Edwards plans to open about 12 shops in 2011.

"It's like going back to where it all started," said Mr Edwards. "My son, Chris, who does all the buying, found it frustrating as he could see multi-price items bought from China retailing over here at 9.99 and he knew very well we can do the same thing for 5.99. He said we were missing massive opportunities so he talked me into trying the first multi-price store."