Nov
03

In for a penny and in for a Poundland expansion

Ebullient chief Jim McCarthy is confident the chain’s bargain basement forumla will conquer Ireland as it has the UK – albeit with a name change.

On September 28, the day after Poundland, the British value retailer, opened its first Dealz store in Portlaoise, a coach pulled up outside the shop and disgorged its payload of shoppers.

In recession-hit Ireland, the cut-price store had, within 24 hours of opening, become a destination for consumers.

“That has never happened to us before, anywhere,” said Jim McCarthy, the Poundland chief executive. McCarthy, second-generation Irish and sporting a dazzling green tie embossed with the Dealz logo, is an old-school retailer.

Ebulliently cheerful and brimming with enthusiasm, he is part-showman, part hard-nosed businessman, and bears an uncanny resemblance to Mick McCarthy, the Wolves football manager and former Ireland’s manager.

This is one of two Dealz stores that opened in late September. The other is in Blanchardstown, and both are performing “brilliantly well”.

With little fanfare, and no advertising, both are clocking up a combined 24,000 transactions a week, above the average for a UK Poundland store.

In Britain, the average spend is £4.25 (€4.84), McCarthy says. The average spend in Ireland is much higher. The two Irish stores are taking more than €100,000 a week combined.

“To me, what that really says is that the value differential between our prices and the competition is higher here, which is very encouraging,” said McCarthy. “Lots and lots of customers buying lots and lots of stuff.”

For the past two years, McCarthy has been opening a lot of shops, an average of more than one a week in Britain. There are now 364 Poundland shops, which McCarthy thinks makes it Europe’s largest single-price retailer.

Next month he will open a third Irish store, in Killarney, plans to have a fourth outlet open by Christmas, and has said that he will have six stores here by the end of March 2012.

However, that number may well be on the conservative side. Javelin, the market research company, believes that the Irish market can sustain at least 50 Dealz stores.

McCarthy opened his first shop in Northern Ireland in the autumn of 2009. He now has 20.

“Our track record is to over- deliver,” he said.

He does not hang about, either. The record time for converting a vacant premises into a Poundland shop is 12 days, he says proudly; the average is 14 to 21 days.

The Dealz stores are likely to spring up literally anywhere across the country over the next six months.

Dealz is the private-equity owned Poundland’s first step outside the British market.

Market research discovered that putting “Euro” over the door was a negative as far as shoppers were concerned, not just in Ireland but across Europe, so Dealz it is.

In crossing the currency divide, the company has also dropped the single price formula. “Some 98% to 99% of goods are at €1.49, and a small number are at €1.99,” said McCarthy. “You can still go in and buy 10 items for €15.”

Otherwise, the model is well and truly set. Dealz offers 1,100 branded products, mostly in the food, drink and personal care lines, which create a “halo effect” by attracting customers who then buy further goods from across the 17 different categories, from gardening tools to birthday cards.

The Irish stores, McCarthy says, are following the UK-buying patterns pretty closely. The overall, top-selling product is milk, while the single biggest-selling item is Toblerone chocolate.

“We sell 4m Toblerones a year in the UK,” said McCarthy, who appears to be constantly amazed by his own sales figures. The other big seller is an 11-pack of Kodak batteries — “a 10-pack plus one extra free,” he explains — for €1.49. “Amazing value.”

McCarthy, 55, has a string of retailing punchlines. When a customer brags about a bargain, that’s being “Poundland proud”.

“We say that every day is Christmas in Poundland. And in fact, during Christmas, we are five times busier again.”

McCarthy has been in retailing, man and boy, for more than 40 years. His grandparents left Cork in their early twenties to settle in the English Midlands to start a family. His dad was one of nine children, eight of them boys.

McCarthy got his first job when he was 12, doing a paper round for Dillons, a chain of newsagents, in Nuneaton. He left grammar school five years later to join the retailer full time.

By the age of 25, he was put in charge of the Argus chain of newsagents on the English south coast. “It was far enough away from the centre for me to be able to make mistakes,” he said

One of his successes was to convert a number of newsagents into convenience stores. “We could see that was where things were going,” he said.

The fashion chain Next then bought Dillons as part of the retail legend George Davies’s ill-fated diversification plan. When Next hit the skids, Dillons was sold off to T&S, a quoted convenience store chain.

At T&S, McCarthy was brought under the wing of Kevin Threlfall, who taught him the value of enjoying his job. “Have fun and win” is how McCarthy sums it up. It is now the retailer’s guiding philosophy.

“You have to be optimistic to be a retailer,” he said, beaming. “For staff, for customers, it is just not good to go around with a long face.”

McCarthy made “a few million” when T&S was sold to Tesco for £530m in 2002. He had helped to build the convenience estate up into an empire of more than 800 stores.

After the sale, he took 18 months off. He was then hired to revive Sainsbury’s convenience stores, working under Justin King.

He says that he “fell into” the Poundland job in 2006. Long working hours and a lengthy commute meant he was doing 15-hour days at Sainsbury’s.

With family matters to consider, he wanted to relocate to the English midlands. Poundland, then owned by Advent International, was looking for a managing director. He walked into the business cold.

“Within three weeks, I said to myself, wow, this is a great business,” he said.

Advent quadrupled its money in 2010 when it sold Poundland to Warburg Pincus, another private equity company, triggering another pay day for McCarthy.

He invested a big chunk of his windfall back into the company.

Ireland is an important step for the group because it will reveal whether the model can travel. The €1.49 price point is a fair way ahead of the £1 used in the British stores.

“We have to ship product here, and operating costs are higher, staff costs are higher,” said McCarthy.

He says that he hopes to meet Irish suppliers early in the new year and he is confident that he can get more on board. The discount[ chains Aldi and Lidl] “have done a fair bit of the ground work for us”, he said. “We are a low-margin, low-cost operator. What matters to suppliers is not the low price we charge customers, it is the price they get for their product.”

The message to suppliers is clearly that they should view Dealz as an opportunity, not a threat. At suppliers’ meetings in the past, executives leading companies such as Kraft and Procter & Gamble have given presentations.

Is now an opportune time to buy Irish sites? Not necessarily, says McCarthy. Good locations are still being bid for and any property that is cheap is probably that price for a reason.

Despite a planning row that is brewing over Euro Giant, a rival that is hoping to open on St Stephen’s Green in Dublin, McCarthy says that the stigma of the single-price retailer does not necessarily stretch to his own business.

There is a Poundland in picturesque Stratford-upon-Avon — Shakespeare country — and one in upmarket Twickenham, near London. “I think people expected plastic buckets on the pavement, but we are a professional retailer.”

As for shopping centres, he says, Poundland is “a footfall magnet”. It might not sit easily alongside Gucci or Prada, but he rhetorically asks how many shopping centres would turn their noses up at a Primark or Penney’s.

Though 85% of customers fall outside the high-income AB category, that proportion is falling. “I think people are getting comfortable with value, and unlike the last recession back in the early 1990s, there is a far greater access to value. How many stores did Primark have in 1990? Now you have Asda [in the UK], Lidl and Aldi.”

And of course, Poundland.

The break-neck pace of expansion is not about to slow any time soon, he says. “There is still plenty of track left.”

The life of Jim McCarthy

Age: 55

Job: chief executive, Poundland

Lives: Stratford-upon-Avon, England

Family: married to Rosie, since he was 18 (met at Dillons newsagents), two grown-up sons

Favourite film: One Flew Over The Cuckoo’s Nest

Current book: Raving Fans by Ken Blanchard and Sheldon Bowles — “my real passion is biographies”

Favourite music: Supertramp

Working day

My commuting time is about an hour. I am not an early starter — I am usually at my desk about 9am. I like to clear a day a week to visit stores and talk to people. It is not always great for my timekeeping, but I like to know what is going on. George Davies said that when you are a retailer you are juggling four or five balls in the air. It’s just a case of making one stick.

Downtime

I like to travel. My other interest would be football, squash, and watching my son, who plays professional rugby for Worcester Warriors second team.

Taken from The Sunday Times on 30/10/11.

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