As it stocks its shelves with Peppa Pig and Spiderman Easter eggs, Poundland has only a few days to wait until the deadline for a decision from the Competition and Markets Authority on its acquisition of rival 99p Stores.
Poundland has become a firm fixture on the nation’s high streets, an impressive feat for a retailer that was only founded in 1990 (when, £1 had the buying power of £2.17 in today’s terms).
The rapid growth of single price-point retailers has been accelerated significantly by the retail distress encountered through the recent recession. Last year, Deloitte released a report which found that one in five stores vacated as a result of a major administration were subsequently reoccupied by a discount or surplus store.
A more surprising finding was that within that population there were 17 distinct fascias that had “Pound” or “99p” in the brand name. This number will reduce to 16 should Poundland conclude its acquisition and subsume the 99p fascia.
If the proposed deal is approved (with 9 April set as the current deadline for the decision), Poundland stands to add some 250 or so 99p Stores to the existing portfolio of 500 Poundland stores. There is, inevitably, a degree of overlap between the two portfolios with The Times identifying 100 of the 99p Stores “close to existing Poundland outlets”.
So, how should retailers confronted with the task of consolidating two store portfolios, or even growing their existing estate, arrive at an objective view of a footprint that is right rather than one that feels right? The answer is provided by the developments that have been made in modern analytics where optimising the store portfolio footprint, both in terms of absolute numbers and specific locations, has made a fundamental transition from art to a genuine science.
Retailers are generally awash with data and this is increasingly being combined with a wealth of publicly available open-source data to build powerful models capable of analysing local markets in detail, creating bespoke catchment criteria, interpreting geodemographic drivers and assessing local competitive environments to provide retailers with a detailed understanding of the size of the potential market in any given location and the share of that market they can expect to have. Such micro-market segmentation can be used to generate a prioritised list of new locations that match the portfolio to the retail strategy.
An analysis of these factors applied to the legacy portfolio can also help to inform the prioritisation of store refurbishments, decisions around format and, perhaps most importantly, the identification of stores at risk of decline in performance and contribution.
Herein lies another challenge. Retailers tend to be hugely effective when it comes to the acquisition of space but rather less so when it comes to disposals. It can be counter-cultural for retailers to relinquish space, but arguably the most important element of any store opening programme should be a parallel store closure strategy.
To deliver this effectively requires its own specific set of skills and disciplines which may well differ from those of the acquisition-led organisation. An effective disposal function needs to be designed with its own specific key performance indicators, incentivisation measures, management structure and reporting structures (ideally at board level).
The true challenge is the same for all retailers whether merging, expanding or contracting: to be vigilant about retaining only those stores of the right size and the right cost in the right location; and to be proactive in addressing those stores that no longer fit those criteria.
Hugo Clark is head of retail property strategy at Deloitte Real Estate
