Poundland founder Steve Smith shares his secrets to retail success
In 2000, Steve Smith sold Poundland for £50m – a business which now is valued at over £1.5bn. Steve was the originator of the one-price retail concept, and despite its initial struggle to convince landlords of its value to the high street, it ended up revolutionising the sector.
In Business Leader’s latest cover story, Steve talks about the decade-long story of the growth of Poundland, and how it became a national success story.
WHAT WAS THE INSPIRATION FOR POUNDLAND?
The idea for Poundland was inspired by my father’s first market stall, where lots of items were put in a cardboard box and sold for 10p. These items were always the best sellers.
So we thought, why couldn’t the same principal be applied but on a larger scale.
In April 1990, the pound coin had just been redesigned, so we came up with lots of ideas for names – Poundtime, Poundworld, but the name we liked best was Poundland.
THE FIRST SHOP OPENED IN BURTON-ON-TRENT IN 1990, FOLLOWING A £50K LOAN FROM YOUR FATHER – HOW SUPPORTIVE WAS HE IN GETTING INTO THE WORLD OF RETAIL?
I learnt so much from my father – he taught me everything I know. When he sold his business in 1989, and went to live in Majorca, all my family was due to go and live out there.
However, on the day we were meant to go out there, my wife and I decided to stay in the UK. It was during this two-week period that we came up with the idea for Poundland.
From there we started travelling the country to find products we could sell for this price point. When the first shop opened in Burton-on-Trent, we had 648 products we could sell for a pound.
WHAT SET YOU APART FROM OTHER STORES ON THE HIGH STREET?
It was an idea that hadn’t been seen in the UK at that time. The customers would walk into the store and could not believe that everything was the same price.
The success of Poundland was down to word-of-mouth – it was such a unique idea, that customers would tell their family and friends about this shop that sold everything for just a pound.
WHAT WAS THE BIGGEST CHALLENGE YOU FACED WHEN YOU OPENED THE BUSINESS?
The biggest challenge was finding a landlord that believed in the vision of Poundland. When I used to tell them what we were going to do, they would always be sceptical about us finding enough products we could sell for a pound.
They would be concerned about having enough money to pay the rent, deal with issues such as inflation, and pay staff their wages. They told me, ‘You will never be able to do it.’
IS THIS PART OF WHAT DROVE YOU TO SUCCESS?
Never ever give up. If you are doing something you believe in, stick with it, and find a way to make it work.
I saw how popular that 10p box at my father’s stall was, and that excited me, even more, when the new pound coin came out, knowing that we could sell items for a pound, meaning that we could get even more value for money.
BY THE END OF THE FIRST YEAR, POUNDLAND WAS OPERATING FROM SEVERAL STORES, AND IT TURNED OVER £1M, WITH A PROFIT OF £6K – WHAT DO YOU PUT THIS DOWN TO?
The first year that we traded Poundland, we opened Burton-on-Trent, but it was difficult to find landlords who believed in the concept. The only way to conquer this was to try and conquer the best shopping centre in the country. At the time it was a shopping centre called Meadowhall in Sheffield.
We gave our pitch to the owner and he said he had some good and bad news for me. Good news – he loved the concept. Bad news – he had no shops. This is where doing your homework is vitally important. We knew they had a shop called Video Magic, and I believed that these types of stores were not going to last.
So, I asked that if this shop became available, could I have it – he agreed. Three months later, we received a phone call and this shop was available, and he let us have the store.
The rent was £120k, the service charge was £90k and the rates were £65k. However, with that in our portfolio – it was easier going back to other landlords and say that we had a store there. I used to say, ‘If it is good enough for Meadowhall, then it is good enough for this shopping centre.’
FOLLOWING THIS, POUNDLAND ALMOST WENT BUST. HOW DID YOU RECOVER THE SITUATION?
It was difficult to convince suppliers to give us credit. It was a new concept, it was unproven, and we were taking on big rents on High Streets.
For me, you’ve got to look after the customers, the staff and the suppliers. Suppliers are just as important as customers. If it wasn’t for my suppliers, I wouldn’t have been able to open Poundland.
We had just moved into a new warehouse in the Black Country. It had cost us almost £11m to build – but it was opened late. This meant that we had to open temporary warehouses. This also meant we couldn’t get the stock out to the stores.
It was January and we had about £8m worth of Christmas stock left, and there was no way we could pay for it. I was thinking at the time that if we didn’t pay for it, then we could go bankrupt.
I needed 60 days to pay for this stock – and they all agreed to help. That saved Poundland – we would have gone bankrupt without that meeting.
YOU SOLD THE GROUP FOR £50M IN 2000, BUT JUST BEFORE THAT YOU HAD AN OFFER FOR £20M. WHAT HAPPENED?
One of our suppliers said he would like to buy Poundland and presented me a cheque for £20m. I said I needed to speak to my dad about it, and I agreed to call my supplier the following day. My dad said to take the deal! I told him that I wasn’t ready – we had an office opening in India coming up, 12 new stores opening, and the warehouse was not quite ready.
We agreed to leave it until after Christmas. I told this to the supplier, and he told me to keep the cheque and he’d see me in January.
With the late opening of the warehouse, we couldn’t get the stock into the stores. We started slipping financially, and where we were previously looking at making a profit that year, we ended up making a loss.
The supplier came back in January and I showed him the figures. He proceeded to take back the cheque and rip it up. He said, ‘thank God I didn’t do it’.
WHAT WAS THE MAIN REASON BEHIND SELLING FOR £50M?
From almost going bankrupt and turning down £20m, six months later we had a £50m cheque on the table. This was all cash as we had no debt. This time I was going to sell.
Being offered £50m in cash at the time – you must look at being a good businessman, but also a good dad. I used to leave in the morning when my daughter was asleep and get back home and she would be asleep.
This meant I missed my daughter growing up. I had two young boys and after speaking to my wife, I didn’t want to miss out on my boys growing up.
POUNDLAND IS NOW TURNING OVER £1.5BN – DO YOU THINK YOU COULD HAVE ACHIEVED THAT?
We put the infrastructure and systems in place – we put the warehouses and stores in place. We laid the foundations. The main thing they needed to do was open more and more stores. Where we had 100 stores, they went on to open a lot more stores.
The dream was to turn over a billion pounds. What I didn’t expect was that when it floated on the stock exchange, it floated for almost £1bn. We would have reached a billion – it was there to be had.
POST-POUNDLAND, WHAT HAVE YOU BEEN UP TO AND WHAT COMPANIES ARE YOU INVOLVED WITH?
After selling Poundland, I had about a year off. Since then I have invested in quite a few companies and helped my children start some companies. Although there are Poundland, Poundtime and Poundworld, etc – customers always say that they are going to the ‘pound shop’. I tried to buy the name for many years but was not able to buy poundshop.com.
My son has now taken it online and we have over 400,000 customers and around 3500 products. He has a warehouse and customers all over the country, but also expats abroad. It’s all delivered right to their door. I work there two days a week.
I also work on tech for care homes, duty free shopping, temps.co.uk – an online recruitment agency, and I am an investor for NatWest. I also own over 1000 domain names.
I am looking for the next billion-pound business. And I believe this will be in the world of mobile payments. In ten years, no one will be using cash or cards. This is the future of retail.