Will 'One Below' succeed as a new discounter?

Will ‘One Below’ succeed as a new discounter?

Pro Ganguly Blog, Retail

A new discount retailer opened its doors recently on UK high streets. The chain, known as ‘One Below’ initially opened four stores in Leeds, South Shields and Doncaster. All four sites were previously occupied by the failed discount retailer Poundworld but the link with Poundworld doesn’t just end there.

One Below is the brainchild of father and son team Chris Edwards Snr and Jnr who owned Poundworld and sold it to TPG Capital in 2015 for £150m. Poundworld eventually went into administration in 2018 with the loss of 5,000 jobs and the closure of over 350 stores. Many people, including Chris Edwards Snr publicly blamed TPG for the failure of Poundworld and whilst TPG could have done things differently, they bought the business with good intentions and certainly didn’t set out to lose their significant investment. They invested in a brand new, multi-million pound state of the art distribution centre and head office and brought in a new senior management team, all with solid retail credentials. It would be unfair to lay 100% of the blame for Poundworld’s failure on TPG or the senior management team they employed because Poundworld’s problems started well before TPG acquired the business. So given that One Below aims to emulate the original Poundworld business model (One Below will only sell products priced at £1 or less), owned by the original owners of Poundworld and are employing the majority of the old management team of Poundworld (both at HO and stores) and plan to open stores currently lying empty through the closure of the old Poundworld stores, what chances are there for One Below to be a success?

Opening a discount store in the current retail environment is certainly a bold move but if anyone can succeed, the Edwards can. Chris Edwards Snr is a charismatic leader and trader – he built Poundworld from a  market stall in Wakefield. Chris Edwards Jnr is an entrepreneur – he knows a good deal when he sees one. With the Edwards now surrounded by a  loyal management team that helped them build Poundworld into a successful business and the availability of sites presumably at favourable terms from landlords keen to re-let sites previously occupied by Poundworld, One Below certainly has a strong road map to succeed. Using store staff previously employed by Poundworld, One Below also have a great opportunity to ‘re-connect’ with Poundworld’s old customer base who were loyal to Poundworld but deserted the retailer when, under TPG, the business started to move to a ‘multi-price’ model at rapid pace and alienated a large proportion of the customers.  I visited one of the One Below stores in its second day of trading and it’s safe to say that other than the brand name, One Below is a reincarnation of the old Poundworld which will no doubt help to attract the old Poundworld customers back through One Below’s doors.

However, it won’t be plain sailing for One Below and the business will face several headwinds.

First and foremost its strategy to only sell products priced at £1 or less means that product ranges could be limited and margins will be low so the only way to drive profit will be through driving volume to drive cash profit rather than margin. To do that, the business will need scale which will require a minimum of 100-150 stores. However, in the early days, the business can be flexible in the way it buys and deals with its suppliers – something that most of the other discounters have lost the ability to do given their scale. There will be no shortage of suppliers wanting to supply One Below but the business may struggle to compete with its more established competitors such as Poundland and B&M who now possess significant buying power from branded suppliers in the UK and Europe as well as from suppliers in the Far East.

The One Below management team will also need to ensure that whilst they are building scale, they focus on getting the basics right to set strong foundations for future success. Some of Poundworld’s challenges (and ultimately its demise), arose from factors such as poor stock management leading to millions of pounds of legacy stock and poor cash flow, lack of business processes and systems suitable for a £400m+ retailer, poor store standards/discipline. The new team cannot afford to make the same mistakes as Poundworld.

Finally, the team need to ensure that they stick to their promise of “£1 or less” – Poundworld’s attempt to convert itself to a multi-price retailer ended in disaster. Poundland, whilst still majority a £1 retailer, do sell products that are priced at higher than £1 and recently announced a transformation team to reinvent it’s proposition which could see it selling more multi-price products in its ranges which would give One Below a clear USP to be the only true discounter selling products that are priced at £1 or lower and maintain the true charm of a Pound shop.

At 4C Associates, our teams have extensive experience of helping retailers within the value/discount sector to become more profitable through buying better. Our suite of ‘4Margin’ tools can use retailers data to identify key strategic insights which can then be used for effective supplier negotiations and business planning to maximise profit delivery.