The location of Poundland stores in town centres could hamper the retailer's recovery as long as the spectre of COVID-19 hangs over consumer confidence, a retail analyst has warned.
Hannah Richards of GlobalData was commenting following an announcement by Poundland owner Pepco Group that its profit before tax slumped 16.3% in March, as coronavirus lockdown measures came into effect.
'Agile Response'
Richards noted that the business was "agile in its response" to the coronavirus crisis, "with cash preservation front of mind, withdrawing outstanding orders from suppliers and achieving c.£262 million worth of stock deferrals and cancellations".
It also cut discretionary spend to reduce operating costs, and tapped government support measures in terms of putting staff on furlough and availing of reduced business rates.
"In doing so, Pepco has remained sufficiently liquid to persevere through a sustained period of reduced demand, and continues to pursue expansion within the UK post coronavirus," she said.
Nonetheless, Poundland's presence in town centres, where many shoppers still fear to tread, could weigh on the retailer the longer the COVID-19 situation continues.
"Though Poundland qualified as an essential retailer and much of its store portfolio remained open, reduced town centre footfall and absence of a transactional website was not enough to compete with the strong performance from the likes of B&M, which achieved l-f-l sales growth in the UK of 22.7% across the eight weeks to 23 May 2020," Richards said.
"Despite a temporary spike in demand for cleaning, healthcare and food products as consumers turned to stockpiling, demand was not sustained as supermarkets quickly began to restock shelves and product availability from online retailers improved."
Value Positioning
While Poundland's value positioning will undoubtedly prove an asset in the event of an economic downturn, Richards added, "high street and shopping centre footfall is expected to remain subdued for quite some time as shoppers remain hesitant to visit busy shopping locations.
"Therefore, Poundland is at a significant disadvantage compared to rival discounters such as Home Bargains and B&M, which allow shoppers to buy online and have a greater out of town presence, which are likely to be more favourable locations over H2 2020.''
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