As the downturn bites, discount retailers like Poundland are stealing a march. John Ryan talks to chief executive Jim McCarthy about its no-frills approach and evolving store design

Plutarch, the Greek essayist, seemed to understand the notion of value. “Nothing is cheap which is superfluous, for what one does not need is dear for a penny,” he once wrote. It is a maxim that many entering the portals of a discount retailer might do well to consider.

All of us are, by now, familiar with the notion of supermarkets where heavy discounting and a no-frills approach to store design combine to create an offer where cheap is also desirable. These are places where the stock is there because it is in demand – Plutarch would probably have approved. And whether it is Lidl, Aldi or a host of others, shoppers know what they are in for when entering such stores and the sector’s continued expansion presents a constant headache for Sainsbury’s, Tesco, et al.

There is, however, another part of the discount arena that operates along rather different lines: chains that are generically known as pound shops. There are quite a few of these in the UK and the proposition is simple – everything on the shelves will cost£1. The big daddy of small prices is Poundland, which broke the 200-store barrier with an opening in Doncaster late last year and has 204 outlets at present.

Stand in the foyer of Poundland’s head office, on the outskirts of Wolverhampton, and large, shouty banners announce that this is a store group that wants to do deals: “Buyers available to see you now. Instant decisions made – bring all your job/stock lots here first!” and the equally urgent: “Suppliers always welcome.”

Sealing the deal

Chief executive Jim McCarthy says that suppliers wishing to trade with Poundland will get an on-the-spot decision and that this leads to a very high SKU churn rate. This perhaps also explains the graphic that reads: “More sales per sq foot than any other UK retailer.” It also poses something of a problem for Poundland store managers. McCarthy says a business that, among other things, vacuums up “wow” job lots, is likely to find that the size and shape of the products that it buys may vary from one week to the next.

Practically, this means that while the retailer sends out merchandising and layout “guidelines” twice yearly, following them to the letter is fraught with difficulty. It also means that the onus is on managers to make the most of the stock that arrives and to try to use the store environment to their advantage. “There’s a little room for ownership in this business and we do encourage communication up and down, and we listen,” says McCarthy.

The store environments are basic. The floors, which generally have faux-wood vinyl floors, are painted a bright yellow and by no stretch of the imagination could be described as scoring highly on the aesthetic front. On the other hand, as McCarthy says: “If you look at the shelving systems [generally basic, but effective, gondolas], we think the product should do the work, not the shelving. Whether it’s shopfronts, flooring or shelving, everything is constantly being looked at and reviewed. I’m never happy with our shops and always think we could do better.”

Poundland does all of its store design work in-house – even the point-of-sale material is created in the Wolverhampton head office, although the printing of it is outsourced. For many retailers in the present climate, an in-house store design team would be a bridge too far; a distraction from the business of retailing. However, as McCarthy observes: “Customers will compromise the [store] environment in search of value.” Which probably means that the design team’s focus is more on point of sale and packaging than store design.

Get the look

The job of creating a single, coherent look across the chain is also made more straightforward by the store portfolio. Poundland has a dinky 1,400 sq ft (130 sq m) outlet in Melton Mowbray and a substantial 9,000 sq ft (835 sq m) store in Hull, but the bulk of its estate hovers about the 4,000 sq ft (370 sq m) mark, according to McCarthy. Most of the branches also happen to be rectangular in shape and tend not to have pillars. “We are unencumbered by pillars,” as McCarthy puts it. In 2007, Poundland launched a project to update its mid-shop fixturing and the present colour scheme is the outcome of a repainting job last year that involved changing the store interiors from orange to yellow.

All of which means that the task of achieving consistent layouts and guiding shoppers though the space is relatively simple, even allowing for the vagaries of certain stock that only appears on the shelves for a short time.

Poundland is, to a great extent, about brands because, as McCarthy notes: “This is where people can really understand the value we offer.” Displays therefore tend to group brands together and these are always foregrounded in the shops. McCarthy says that in these cash-strapped times there is also a shift towards more food sales, with 30 per cent of the chain’s turnover coming from the 15 per cent of space occupied by the category. This could increase further if the downturn continues, but Poundland layouts are sufficiently flexible for this not to be too much of a problem.

Back once more in the Poundland head office foyer, it is hard to ignore the flatscreen monitor on the reception desk that highlights “Hero Suppliers” and “Villain Suppliers”. “Suppliers really hate it when they see their name there. But they don’t deliver late again when they’ve been on the villain screen,” says the cheerful receptionist. A shop, you might think, for our times.

But as a format Poundland is now in its 19th year. It opened 37 new outlets in 2008 and McCarthy says that at least another 30 will open this year.

Plutarch might have had a few reservations about a store where much of the merchandise is snapped up because it happens to be there and, equally, because it happens to be£1 – purchase in haste and then wonder why you did so at leisure.

Nevertheless, there is no denying the attraction of this end of the market for a broad cross-section of the population. While the stores might appear a little utilitarian, the 122 per cent hike in operating profit for the year to March 31, 2008, revealed by Poundland in October, is nothing short of remarkable. And with all those empty Woolies shops, rapid growth remains on the cards.