In an attempt to undercut a special offer from an opening 99p branch in Ipswich, Poundland has slashed their prices to just 93p. The new rival 99p store opened in the city centre, and welcomed customers with an exclusive offer of all prices set at 94p each.
This prompted Poundland to swiftly slash their prices to try and undercut the new 99p store. Hussein Lallani, commercial director of 99p Stores, said: “We have a different strategy for each new opening. Our stores and Poundland are obviously competitors so whenever we have a new opening it causes some competitive tension.”
Whilst Poundland chief executive Jim McCarthy responded: “Poundland always aims to offer great quality products for amazing value to all its customers. Like all retailers we test competitor response options all the time and this is just one of a number of tactical options.”
The rise of these new style stores, offering bargains for less than one pound, could be seen as a sign of the credit crunch and austerity. But will potential customers be put off by Poundland signs that advise ‘everything for a pound’ when the actual price is 93p? And are we watching the pennies that much to consider crossing the street for the saving of an extra penny?
It seems that Poundland think we will; as this is not the first time the bargain store has introduced a price cut to battle it out for customers in the high streets.
In East Ham, Dudley and Chelmsley Wood, Poundland stores all announced price savings in an attempt to fend off their competitors. And their strategy seems to be working, as their recent sales figures showed a rise of 15% to £880m, with pre-tax profits growing 29% to £23.1m. Not only that, but CEO McCarthy is confident that Poundland soon double their number of stores in the UK to 1,000.
There is also the rumour that both stores are planning to offer their bargains online, with Poundland already voicing their ambition to set up a Poundland online store.
And in an interview with The Grocer last year, McCarthy even suggested that Poundland could be heading for a stock market flotation: “flotation is usually a natural output of success for firms to move forward”.
If this happens it seems that the real winners would be the owners of Poundland – US private equity firm Warburg Pincus, who could possibly net a whopping £600m. Not bad for the £200m they bought the company for in the first place. My guess is that the company bosses won’t be crossing the street for an extra saving of 1p in every pound with that amount of profit in the bank!