As Kevin O’Byrne prepares to fully take the reins at Poundland, one thing he will no doubt be pondering is its ecommerce strategy.
The value specialist appears to be ploughing on with its trial of a transactional website. Incumbent boss Jim McCarthy, who is stepping down next month after 10 years in charge at Poundland, even said last month the site has a “good future”.
But can value operators ever really make the economics stack up on ecommerce?
Analysts remain sceptical.
”You only get a gross profit of £8 on an order of £20. It’s not the right thing to do”
Ben Hunt, Haitong
Ben Hunt of broker Haitong believes value operators “can’t make it work” because the average transaction value is too low. “You only get a gross profit of £8 on an order of £20. It’s not the right thing to do.”
Poundland’s McCarthy has been circumspect about the performance of the transactional website, but he has hinted that it is far from being a core part of the business.
So why bother at all?
Hunt suggests it can be a case of “me too”. Because of the growth of ecommerce, not having some kind of presence online could almost seem perverse, however economically unviable it appears.
Poundland’s rival Wilko also operates a transactional site, but again it is unclear how that performs.
Ecommerce is definitely not for all value retailers.
Poundworld tested an ecommerce site but it was pulled last November. Asked about the decision to abandon the site, Poundworld’s trading director Christopher Edwards tells Retail Week it is focusing on its store roll-out programme.
He says: “In terms of ecommerce, we have prioritised extra investment into our fast-growing wholesale company, Discount-Wholesale.co.uk.”
Another value player, B&M, has resisted so far a leap into the world of ecommerce.
”It’s an opportunity we are constantly reviewing…The practicalities are not straightforward”
Simon Arora, B&M
However founder and boss Simon Arora has refused to rule out a launch. “It’s an opportunity we are constantly reviewing,” he says. But he acknowledged: “The practicalities are not straightforward.”
Analysts have also raised concerns about value operators dabbling in ecommerce.
“It’s difficult to see how you can translate that high footfall onto a website,” says PeelHunt analyst John Stevenson. “To make it work you need to be doing large big-ticket stuff, but then you are moving away from the core offer.”
One discount operator that Stevenson believes is doing the right thing in the area is Aldi. He praises the German group’s focus on wine online as a clever way of “introducing people to the brand”.
Perhaps this could be a way forward for discount and value operators? Draw out shoppers by selling a high-margin category online to help balance the cost of doing business on the web and create a warm feeling about the brand in the process.
Will Poundland’s new boss see value in continuing the experiment? Or will O’Byrne take analysts’ advice and decide the economics don’t stack up?