As Kevin O’Byrne prepares to settle into the chief executive’s chair at Poundland, it’s not just personnel that are changing in the value variety store market.
When he joins the single price-point specialist in April in preparation to succeed the highly regarded Jim McCarthy, O’Byrne will confront a different retail landscape – one in which pound and bargain stores may not rule the value roost to the extent they have done in recent years.
While some brokers, such as Canaccord Genuity, are bullish on Poundland and see opportunity from the integration of recently acquired 99p Stores and international expansion, others are less confident.
Prominent among the value variety store bears is Haitong.
The broker published a hefty note in January, entitled ’Into the Discount Bin’, in which it maintained “cracks are appearing in the discounter sector”.
One factor is that the waves whipped up by the supermarket price war are crashing against the discounters’ walls.
The waves whipped up by the supermarket price war are crashing against the discounters’ walls
George MacDonald
The price differential on branded consumables, a big footfall driver and sales generator for the value specialists, is coming down.
And as big grocers such as Asda continue to cut prices, the price difference is likely to be eroded even further. In Poundland’s case, Haitong also harbours “serious doubts about the strength of higher margin own-branded offerings”.
Along with Poundland, the broker also rates B&M a sell – a rating reiterated in a note last week following a meeting with the retailer’s management.
In addition to these potential pressures, a new entrant is about to launch. Former Asda boss Andy Bond, backed by the financial muscle of retail tycoon Christo Wiese’s Pepkor, will open its first branch at the end of May.
Trading as GHM! – which stands for Guess How Much – it is likely to bring even greater competition to the value market.
Last year Bond launched clothing retailer Pep & Co, opening 50 stores over a short period. If he moves at the same pace with GHM! he could make a big splash.
O’Byrne is well thought of and, despite a steep share price decline over the past year, McCarthy has built up a formidable business in Poundland.
But the battle will be more intense for every penny, never mind the pounds, from here on in.
Retailers bear brunt of click-and-collect
On top of looming costs such as the living wage and currency headwinds, another financial burden is fast bearing down on retailers.
In a fascinating note published this week, broker Cantor Fitzgerald considered the implications of the continued rise of multichannel shopping and m-commerce.
The broker calculates that click-and-collect, and the associated returns, fashion retailers alone have brought additional costs of £500m over a year.
As retail spending remains rather lacklustre, the drive for productivity and the Grail of creating a ‘seamless’ business will become ever more urgent.
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