With value retailing booming amid the downturn, landlords have realised that the discounters they have shunned previously can fill voids and drive footfall. Ben Cooper reports.

One retailer’s misery is another’s gain. Or at least that’s the thinking behind Poundland’s aggressive expansion. As consumers’ caution increases, causing grief to the majority of retailers, the notion of shopping in single-price shops like Poundland is becoming more inviting.

Not only are budget retailers becoming more of an attractive offer to consumers, landlords are also more receptive to the idea of adding them to the mix. Traditionally, there has been caution about bringing retailers that are perceived to be downmarket into shopping centres and high streets, but these retailers are being embraced much more warmly than they were even a year ago.

These days, single-price retailers are much more likely to be taken seriously by landlords, both as an addition to the tenant mix and as a footfall driver. With Poundland, the UK’s original and largest single-price retailer, wanting to increase its store presence substantially by the end of 2010, it would appear that single-price retailing is set for a new era of growth. But is this because the idea is more acceptable now, or is it purely a temporary phase brought about by the desperate state of the market?

“Landlords are becoming less snobby,” says Capital Retail senior surveyor Mike Willoughby, who acts for Poundland. “They’re looking outside the box and they’re coming around to the idea of single-price retailing. We’re getting units in schemes that perhaps a year ago we wouldn’t have done, because Poundland is becoming more acceptable and landlords are hungry for more stores.”

In the past month, Poundland has added seven stores to its portfolio. The signings in Newcastle, Halifax, Cambridge, Hull, Hammersmith and Brixton in London and Bangor in North Wales heralded the beginning of a new phase of expansion for the single-price retailer. It aims to open 35 stores this year, 40 next year and a further 40 in 2010, taking its portfolio to about 300.

“What’s interesting at the moment is that landlords are thinking more about value,” explains Poundland property director Craig Bales. “Centres that haven’t really accepted single-price retailing before have now started talking to us. There’s an appreciation of the role that value can play within a centre. I think there will be a lot more value retailers appearing in shopping centres.”

The fact that Poundland feels able to embark on growth of this scale is a sign of the times. Since it was set up in 1990, the retailer has expanded to 178 stores but, within three years, this will have increased by about two thirds. And it’s no coincidence that this big push is taking place just as the rest of retail is facing unprecedented hardship and consumers are being squeezed by rising fuel prices, spiralling household bills and food costs, and a scarcity of credit.

The appeal of spending a pound on what are often essential household goods and the fact that many single-price retailers have sharpened their act in recent years – often selling well-known brands at a lower price than their high street counterparts – has made the concept a lot more respectable. The signing in June of a deal at Westfield Derby – its first store at a Westfield scheme – is yet another indication of how attitudes have shifted.

Single-price retailing is by no means a new concept. It has proven popular with landlords in secondary sites for years because of its universal appeal. As 99p Stores buying director Faisal Lalani explains: “Everyone loves a bargain. We don’t see just one class of customers using our stores – it’s the whole demographic. Discount retailing has become classless.”

Indeed, the range of brands available in pound stores might surprise many, because the same products are available at larger full-price retailers. 99p Stores, for example, sells Walkers Crisps, Mars, Cadbury, Nestlé and Pepsi.

And large-scale expansion is not confined to Poundland – 99p Stores is embarking on a similar period of growth. In the next 10 years, 99p Stores intends to increase its portfolio to 300 stores and double its present portfolio in the next three years. It, too, has encountered a more friendly welcome from landlords when it comes to negotiating for space than in previous years and is just as upfront about the role the downturn has played in this.

“Perceptions have changed to the extent that, now, landlords believe we are here for the long term and have continually offered great value, which keeps customers coming back,” explains Lalani. “More properties are becoming available and we are able to negotiate better deals than before.”
The role the downturn has played in driving discount retailing can’t be denied. In contrast to the majority of the retail sector, which is increasingly suffering the ravages of poor consumer spending and confidence, value is coming into its own. Sales figures published by 99p Stores in June revealed a 16 per cent increase in annual turnover to£94 million and a 7.1 per cent increase in footfall in the preceding three months, following a similar increase in the period from January to March.

For landlords, the effects of the present situation are also starting to take their toll. With consumer confidence falling, demand from retailers for new space is on a downward spiral and the retailers that are taking space are asking for more incentives just to sign a lease.
Add this to the devastating effects of many of the changes to the laws governing empty property, which have left many landlords with bills running into many thousands of pounds if they can’t fill a unit, and it becomes clear that, for those who own retail property, the bottom line is to get tenants in and keep them. Consequently, all offers are now being considered – even those that may have been less than desirable in the past. And single-price retailers are in a position to exploit the opportunity.

As Bales concedes, the shift in landlords’ perceptions is not entirely without self-serving motives. He explains: “You could argue that it’s a cynical and convenient way for landlords to fill voids. To some shopping centre owners, it’s almost a last resort letting, but the more progressive landlords see the benefits of value and single-price retailing, so therefore have adapted their letting strategy.”

Temporary Success

So does this mean that, once the downturn is over, shoppers will turn their back on value retailers? Many feel this won’t be the case. Saving money is not a pastime confined to downturns. While it is true that many consumers are turning to shops like Poundland for the first time, there is nothing to say they will not remain loyal to these stores in future.

“Discounters thrive when there is a downturn in the market,” says Lalani. “Then, when there is an upturn in the market, we keep these customers for life because they know where to go to get a bargain.”

If this is true, it seems that there is a new era on the way for discount stores. While few would argue with the fact that a downturn plays into the hands of discounters, in terms of both serving consumers’ needs and satisfying landlords’ more urgent need for tenants, it also appears there is a cultural shift taking place, in which these formats are becoming more accepted.

What’s more, the bigger, more established single-price retailers have upped their game in recent years. As a result, they are finding themselves shoulder to shoulder with more mainstream brands in higher-profile spots. In shopping centres, they now serve a useful role in driving footfall and diversifying the tenant mix.

And, as the buoyant sales that the sector has experienced so far this year would suggest, cut-price stores might prove to be in a bubble when all around them companies are feeling the heat. This is another factor acting in their favour in terms of landlords’ perceptions – being a rare success story in a market that is generally suffering puts a retailer in a strong position, offering a landlord one less thing to worry about in terms of losing a tenant to administration. “They’re a great footfall driver,” says Willoughby. “Tens of thousands of customers visit stores like Poundland every week.”

Of course, there is a limit to how far the single-price store can go. While it’s true they have undergone a slight image change and are set to enjoy a new level of success and expansion in the next few years, we’ll never see a Poundland concession open in Selfridges.

Yet the attraction can’t be ignored: single-price retailing offers the cash-strapped consumer a handy way to stock up for less and the landlord a deal when new tenants are becoming scarce. While discounters enjoying such favourable conditions may be just as temporary as the downturn, the chances are that these increasingly strong businesses are here to stay.