Analysis: Will Poundland’s multi-price punt pay off?

The discount retailer has dabbled with multi-price products over the years, but this week the business planted its flag in the ground and introduced 50p, £2 and £5 price points.

The move comes as part of a wider shift in the retailer’s strategy to diversify its product offering.

Poundland executive chairman and Pepkor chief executive Andy Bond says the move will allow the retailer to offer new categories, such as bedding, which were previously unfeasible due to pricing constraints.

Planet Retail analyst Rob Gregory believes the move into multi-price has been influenced by the arrival of new owners Steinhoff, which own a slew of bedding and mattresses retailers.

“The move ties into the wider organisation and the possible synergies with [Steinhoff-owned] Harveys and Benson for Beds,” he says.

“Single price discounters are putting themselves at such a disadvantage against multi-price players such as Home Bargains and B&M”

Phil Wiggenraad

“Regardless of Brexit and price pressure, it makes sense for them to benefit from Steinhoff’s purchasing and manufacturing model.”

Poundland has quite literally made its name by offering shoppers a simple and transparent pricing strategy, why is now the right time to change that?

Retail Week Prospect analyst Philip Wiggenraad says: “Single price discounters are putting themselves at such a disadvantage against multi-price players such as Home Bargains and B&M, which achieve very healthy margins despite operating in the value end of the market.

“There may also be a case that in some product categories, Poundland is reaching the limits on how much it can shrink products to fit the £1 price point – particularly now that inflation is rearing its head as a result of the weaker pound.”

Buying clothes in Poundland

Poundland has already started diversifying its product offer by rolling out shop-in-shops for Pep & Co – the value fashion retailer set up by Steinhoff last year. It plans to have 100 Pep & Co concessions by October.

Just over half of the initial 50 Poundland shops chosen for Pep&Co concessions are former Marks & Spencer and Woolworths sites, which Bond says demonstrates a gap in the market for clothing in a lot of high streets.

“Clearly anything that drives shoppers into the store is vital for a fixed price discounter”

Rob Gregory, Planet Retail

“We are putting clothing into big Poundlands,” he says. “We are bringing back to high streets the kind of clothing that was once loved.”

Gregory thinks this tie-up will give the retailer greater resilience against seasonal shopping peaks and troughs.

“Clearly anything that drives shoppers into the store is vital for a fixed price discounter. Even more so than Aldi and Lidl, one of the biggest challenges facing Poundland is driving traffic on a regular basis,” he says.

“Clothing fits into broadening the reasons why shoppers would come into the store, especially on a high street location.

Will it damage the Pep & Co brand? 

However, does tying up with Poundland offer Pep & Co similar benefits?

It could be argued that the fledgeling fashion retailer’s brand reputation could be damaged by partnering with Poundland before it has established a true identity with shoppers.

However, independent retail consultant and CannyInsights.com founder Graham Soult believes the rewards mitigate the risks.

“Pep & Co has been successful because of its focus on tertiary sites where it faces limited competition from other fashion retailers”

Philip Wiggenraad

“The benefits of scalability and ability to grow Pep & Co quickly through Poundland probably outweigh the danger in my view,” he says.

“If this had happened 10 years ago, being associated with Poundland might not have been a good thing. But I don’t think having Pep & Co in there now would automatically make people think less of the brand.”

Wiggenraad adds that the tie-up is unlikely to negatively impact the performance of the fashion retailer’s existing standalone stores.

“Pep & Co has been successful because of its focus on tertiary sites where it faces limited competition from other fashion retailers,” he says.

“It will now have the chance to bed in the 60 or so stores it opened at break-neck pace over the last few years, while at the same time increasing its scale at a minimal cost.”

Committed to the pound

The discount retailer’s trading director Barry Williams stresses that Poundland still has “absolute commitment to the pound,” but added that “multi-price is a big opportunity”.

But does the single-price store format have a long-term future on the high street?

“I can’t really imagine that Poundland or others would revert back to the single-price format”

Rob Gregory, Planet Retail

Gregory is unconvinced.

“It’s more an evolutionary thing – I can’t really imagine that Poundland or others would revert back to the single-price format,” he says.

“A lot of the mainstream supermarkets have become more like Poundland with round-pound pricing in certain areas, whilst single-price discounters are increasingly becoming more like supermarkets.”

Indeed, Bond pointed to the success of Asda’s George clothing label as an example of why Pep & Co’s store-in-store model with Poundland could work.

Whilst the future of the single price discounter is uncertain, Poundland’s initiatives to expand its product remit and diversify its pricing could help it weather the storm of ongoing currency fluctuations and stiff competition from value retail rivals.