Can Poundland make home delivery profitable?

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UK discount retailer Poundland announced this week it is trialling a home delivery service as part of a packages of measures designed to ensure resilience during the Covid-19 pandemic.
The raft of measures, called Project Diamond, include opening new stores, updates to IT and a new pricing structure which will accommodate items outside of the usual £1 range.

The plan also includes Poundland piloting an online store early next year, operating from a distribution centre in the West Midlands. One of Poundland’s existing stores in Cannock will be closed from 18 July and converted into an online distribution centre.

Barry Williams, Poundland managing director, said: “We’re stepping up to support high streets after the impact of the coronavirus by being customer-focused, people-led and tech-enabled.

“This is the biggest transformation in our history as we look to secure our future for another thirty years.”

Founded in 1990 with a single store in Burton-on-Trent, Poundland netted over £1.5 billion in revenue in the year to September 2019. It saw revenue growth in the six months to February of 2.2%.

Poundland relies on buying large consignments of goods in bulk and selling large volumes of them at low prices. It has a fast-moving supply chain which allows it to quickly stock new items, typically including food and everyday household products.

Whether this model will easily translate to online, considering how much the cost of home delivery will eat into margins, is a different question. Even long-established supermarkets find it difficult to make a profit from selling online. The company will need consumers to view Poundland as a shopping destination for a wide range of goods in order to justify making a purchase there.

The model will be impossible without some sort of minimum spend and delivery charge. Poundshop.com, which sells low-cost goods online, currently charges £4.95 for its standard delivery service with a minimum order value of £30.

The move also indicates a seeming recognition by Poundland that the shift back to physical shopping is not going to happen overnight.

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