Poundland and Sports Direct

It has always baffled me; if Poundland lived up to its name and everything was a pound, then why was the average basket size not a round pound number?  Anyhow it is a moot point now.  The announcement that Poundland is to sell products at various price points between 50p and £5 has rendered the ‘everything’s £1’ slogan even more obsolete (they had introduced some price extensions before).

This was always going to happen.  The fixed price retailer ends up being up against it over time; especially where there is some inflation or price as a driver begin to dominate a market.  They end up having two approaches (not mutually exclusive) if they don’t move prices:

  • Reduce the size of the product but keep the price point
  • Reduce the quality of the ‘ingredients’ in the product.

Either way over time the danger is that the consumer ends up feeling short changed and disappointed. When you then see extreme competition in the market from the likes of Home Bargains and B&M, plus some pressure from Aldi and Lidl, then the pressure really mounts on the price points.

Adding variation to the price point also allows extension at the higher end of the market position and so allows for sensible range development.  This is also the historical lesson from Woolworths and Marks and Spencer who also had fixed price for some time.

If Poundland have a vacancy for a signwriter to remove the ‘Everything’s £1’ from their signs, so too Sports Direct have a vacancy.  In their case it is more serious as they seem to be in search of an auditor, and have a deadline looming soon.

The recent saga of Sports Direct would be comical if not yet again so serious.  The company had to delay its results as a ‘last minute tax liability’ from Belgium had got in the way.  I am not qualified to understand the phrase ‘last-minute tax liability’ but it sounds dodgy to me.  Throw in a valuation for £605m and I’d also be hiding under a rock.  What is happening?

Sports Direct say that the bill (which they dispute) arrived just before sign-off on audit and that this development has nothing to do with long standing (2004) auditors Grant Thornton stepping down (despite them seemingly being on track to be re-appointed only hours before).  The need for new auditors does seem to have come as a surprise (though they are being investigated by the FRC over their 2016 audit). There seems to be a lack of groups stepping forward, citing conflicts of interest.  Given Mike Ashley owns most of the high street I am not sure what these conflicts are.  Even in the midst of results and auditor turmoil he bought Jack Wills (promptly sacking the chief executive, closing 8 stores and saying he wanted to pay no rent on all the others – you sort of get the modus operandi) to add to his collection; though he does now regret House of Fraser, which he seems to think is now in a terminal state.

Of these two stories, the Sports Direct one is the more serious in a number of ways.  It does point to the lack of capacity/choice in the audit system and to the pickle Sports Direct keeps on getting itself into. The government may have to step in to find an auditor. Whilst it is admirable that at least Mike Ashley is trying to achieve things in retailing, the proof of it working is in short supply.  For those working in all these businesses, let us hope ways through this are found.

About Leigh Sparks

I am Professor of Retail Studies at the Institute for Retail Studies, University of Stirling, where I research and teach aspects of retailing and retail supply chains, alongside various colleagues. I am Chair of Scotland's Towns Partnership. I am also a Deputy Principal of the University, with responsibility for Education and Students.
This entry was posted in Accounting, administration, Auditors, Closure, Department Stores, Finance, Government, House of Fraser, Jack Wills, Landlords, Mike Ashley, Poundland, Pressure, Pricing, Rents, Retail Failure, Retailers, Retailing, Sports Direct, Strategy, Uncategorized and tagged , , , , , , , , , . Bookmark the permalink.

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