Poundland wasn’t killed by the cost of living crisis
Poundland is on the brink. This week, the Walsall-based discounter filed a notice of intention to appoint administrators, putting around 12,000 jobs and around 600 stores at risk.
It follows a bitter few weeks since its owner, US restructuring specialist Gordon Brothers, put it up for sale. There was a rejected bid, a row over a £30m loan and resignations in the boardroom.
The easy explanation will be the one you read everywhere. Costs are rising, taxes are biting, energy bills are brutal and the government hasn’t done enough to help. All of that is true. None of it explains why Poundland, of all retailers, is in trouble.
Think about what a discounter is supposed to do in a cost of living crisis. Households are squeezed, shoppers are trading down, and value retailers are meant to be the winners. B&M, Home Bargains, Aldi and Lidl have all spent the past few years proving exactly that.
Poundland’s customers didn’t disappear. After closing 149 stores, with the loss of 2,200 jobs, the business said like-for-like sales rose 3.3% in the three months to 26 September. Sky News reported it was outperforming its own forecasts. This was not a business with nobody walking through the door.
So what went wrong? The answer has less to do with the shoppers than with the owners.
A decade of being passed around
In 2016, South African group Steinhoff bought Poundland for £610m. A year later, Steinhoff was engulfed in an accounting scandal. Poundland then became part of Pepco, which filled its stores with Pepco-branded clothing and swapped UK-sourced ranges for products designed for European shops. Neither move went down well with Poundland’s customers.
Last year, Pepco sold the business to Gordon Brothers for a nominal sum. Alongside it went a £30m shareholder loan, also bought for a nominal sum.
That’s three owners in less than a decade, each with different priorities, and none of them with Poundland’s long-term future as its only concern. Every change of hands brought a new strategy, a new set of compromises and another round of uncertainty for the people running the shops.
The final weeks
What happened next is where the story turns from unfortunate to frustrating.
When Gordon Brothers put Poundland up for sale, management and the shop workers’ union Usdaw both backed a bid from Irish investor Martin Property Group, which would have kept the business together.
Gordon Brothers rejected it in a row over that £30m loan. It wanted the loan repaid in full upfront, while Martin offered half now and the rest later. According to The Times, Gordon Brothers also had concerns about whether the bid was fully funded.
Then the three independent directors brought in to oversee the sale resigned after just 12 days, reportedly uneasy at what they believed were attempts to steer the business towards insolvency. Gordon Brothers then restricted Poundland’s access to funding, a move managing director Barry Williams called “unexpected, unwanted and wholly avoidable”. Suppliers started pulling back, and a government adviser was sent to ask questions on behalf of the Business Secretary.
Gordon Brothers has said it will “objectively evaluate” the offers on the table, and it’s entitled to seek the best return on its investment. But it’s hard to look at this sequence of events and conclude that Poundland’s customers were the problem.
The £1 problem
Poundland isn’t the first high street brand to be bought for a pound, and it won’t be the last. As I wrote in my piece for Rainmakers, a small group of specialist investors has become the go-to buyer for Britain’s struggling retailers. Sometimes that ownership saves businesses. But a business bought for a nominal sum by an owner whose expertise lies in restructuring and liquidation will always face a question about whose interests come first.
The headline price is the least interesting number in any of these deals. What matters is who carries the risk, who gets repaid first, and whether anyone at the top is invested in the business still being there in five years.
What it means for the West Midlands
For Walsall, this isn’t an abstract debate about ownership models. Poundland has its head office here, and its stores are part of high streets across the region.
The likeliest outcome now is not a rescue but a carve-up. The Range owner Chris Dawson, Poundstretcher owner Fortress and Lidl are among those reported to be circling for the best sites. Stronger stores may find new owners. Weaker ones, and the head office that held them all together, may not.
The government will be blamed for not doing enough, and some of that criticism will be fair. But if we want to understand why one of the country’s best-known discounters collapsed at the very moment discounting should have been booming, we need to look beyond the Budget and the energy bills.
Poundland’s shoppers never stopped turning up. The question is whether its owners ever stopped to ask what it would take to keep the lights on for them.
