It looks like Poundland’s could finally be running out of gas.
The discount retailer, which only charges £1 for everything it sells, absolutely cleaned up during the recession as austerity hit shoppers flocked to it for bargains.
But Poundland said in a trading update on Thursday that sales in the 25 weeks to September 20 were down 2.9% at stores that were open this time last year. In the same period last year, same store sales jumped by 4.7%.
And Poundland’s big rival, 99p Store, is also running into trouble.
Poundland is in the middle of buying 99p Store for £55 million ($US83.9 million). The deal was first announced back in February but has been held up by the UK’s Competition and Markets Authority probing the deal (it recently cleared it).
Poundland said on Thursday (emphasis ours):
Poundland undertook detailed due diligence on the 99p Stores business prior to the announcement of the Acquisition. However, given the longer than anticipated CMA review process, we have had limited access to recent detailed trading performance data and indications are that 99p Stores’ financial position has weakened somewhat since our original due diligence.
It’s yet another sign that the UK is in a great economic spot right now. Particularly for workers, conditions are great.
My colleague Jim Edwards made this point last week — unemployment is just 5.5%, which is technically as close to “full employment” as we can get, inflation is at a record low, and pay growth is double inflation.
In short, almost everyone is in work and their pay is rising faster than the price of their shopping. That means the attractiveness of buying your shampoo or crisps from places like Poundland and 99p Store is fast diminishing.
Poundland is combating this by opening more stores and growing sales that way. 50 new stores opened in the first half of the year and when you include sales from these shops, sales in the 25 weeks to September 20 rose 4.9% to £532.1 million ($US812.5 million). The 99p Store deal will also add 251 new sites.
Poundland announced today that it’s raising £50 million ($US76.3 million) by selling new shares. The cash will go towards turning 99p Stores into Poundlands.
Business Insider Emails & Alerts
Site highlights each day to your inbox.