Poundland, one of the UK’s most well-known high street stores narrowly escaped full collapse after a High Court judge approved its restructuring plan.
The plan, which was officially approved on the 26th August, saved the company from going into administration just a few days later on the 29th August.
But the ruling isn’t without its problems. Sadly, 68 stores will have to close, and it’s likely to have a very adverse effect on an already tough job market as well.
How Did Poundland Reach Collapse?
After being sold for just £1 to Peach Bidco in June, Poundland has been struggling in the face of high operating costs.
But this wasn’t a recent issue. According to the legal documents of the inquiry, Poundland had struggled to be profitable for a few years, despite high demand for low-cost items.
To combat this, the company expanded its frozen food and e-commerce sections, but these changes were expensive – making it hard to keep up.
Combine these with the higher National Insurance contributions, a rise in the living wage and increasing rent in many of its stores, and you can see how it started to quickly fall behind.
This resulted in a £35.7 million pre-tax loss last financial year, meaning it would have defaulted on loans had the restructuring had not been approved.
The plan approved by the High Court will inject a huge £90 million back into the business – £30m already invested and £60m of new funds – to give it a chance to bounce back.
The Plan For Growth
Despite the financial relief that comes with the restructuring plan, it still comes at a high cost for the company.
Poundland is set to shut 68 stores across the UK and Ireland, which is predicted to impact over 1,000 jobs.
It is also set to end online sales and stop using the Perks app, pulling the company back to basics and focusing solely on physical store growth.
Poundland’s managing director, Barry Williams commented on the high court ruling:
“Despite the opportunity this ruling provides, I’m extremely mindful of its consequences for our colleagues – especially those leaving us,” he said. “Nevertheless, our wider attention must now turn to getting Poundland back to growth.”
Through improving its product range, lowering prices and returning to a model that focuses on its physical store, we may be seeing Poundland return to what it once was: a high-street staple where everything actually costs £1.
Experts Weigh In
Speaking on the High Court ruling, a number of restructuring experts have commented on what this means:
Hayley Songhurst, Senior Associate in the Dispute Resolution Team at Birketts LLP
“It is good news for Poundland and its creditors that the Court has sanctioned a restructuring plan (the ‘Plan’). The Plan will allow Poundland to keep trading under its existing management without handing control to administrators and will enable Poundland to take a flexible and proactive approach to reorganise its business.
“The Court heard that Poundland’s ‘financial position had significantly deteriorated during the last two years’. During that time, other big high street names like the Body Shop and Claire’s Accessories entered administration.
“It also cited ‘higher than market rates for a significant number’ of its sites. The government could offer rent subsidies or caps or consider temporary reductions or waivers on business rates for struggling high street retailers to ease overhead costs.
“Poundland has reportedly received £60-90 million in new funding. The government could offer government-backed loans or guarantees to further stabilise the business or other high street retailers.”
Frank Bouette, Partner at City Law Firm: DMH Stallard
“The convenience of competitive online retailers doesn’t allow room for manoeuvre or strategy errors.
“Add in rising costs, declining sales, a change in ownership and operational challenges, plus resulting financial impairments, and it’s a perfect storm.
“A hard and focused restructure is required if the brand is to survive.”
Ben Westoby, Insolvency Specialist and Senior Consultant at Forbes Burton
“While it’s undoubtedly great news that Poundland have avoided administration and saved thousands of jobs in the process, without major restructuring it simply appears to be a case of papering over the cracks. The fact that they were due to run out of money in a matter of weeks without intervention suggests a larger problem with their business model that simply closing stores may not rectify.
“Like many high street stores, Poundland has failed to adapt to a changing retail landscape. The budget retailer has seen inflation rob them of their ‘everything’s a pound’ USP, tight margins were made tighter by governmental rulings, and the likes of B&M, Home Bargains, The Range, and Chinese online retailers such as Temu offer far greater competition than they previously had.
“In response to these headwinds, Poundland have barely changed anything other than to begin selling items above £1. Without some radical changes, I fear this deal keeping Poundland alive may just be delaying the inevitable.”
What Does This Mean For The Future Of The UK Highstreet?
As the UK high street continues evolving, more retailers are finding it hard to survive in brick and mortar stores.
With increased business taxes, high costs of labour and materials, it’s harder than ever for low-cost shops to stay profitable.
For now, it will be interesting to see how Poundland fares with its new restructure and whether it can become profitable once again.
