Poundstretcher CVA approval

Date : 07 July 2020

Lucy Ingram

Retail Analyst

Variety discounter Poundstretcher has had its proposed CVA approved by creditors, according to Nam News.

Rent reductions

The new agreement means;

  • The leases on 94 stores will remain at their current rates
  • Rents will be reduced between 30% and 40% for 84 stores, for a period of three years
  • Rents will be paid in full for a period of six weeks for 253 stores

Potential store closures

When Poundstretcher initially announced that a CVA was on the horizon, it was suggested the retailer may be forced to close half its stores. This remains a strong possibility for the 253 stores that are having rents paid in full. These stores' commercial merits will be assessed before reaching any decisions.

Unable to achieve profitability

Achieving profitability remains the main challenge for the variety discounter. In its latest FY18/19 results published in April, Poundstretcher reported a -111% profit loss. This was despite positive turnover, of +12.2%.

This followed on from FY17/18 results, where profit was -24.2%, with turnover -2.5%.

There have been frequent senior management changes at Poundstretcher, with three different COO's since 2018. Further change looks to be on the horizon with potential restructuring plans ahead.

Increasingly competitive environment

Poundstretcher has said pricing pressures and increased overheads were to blame for not achieving profitability. We also know that they are operating in a very competitive channel. Fellow variety discounters B&M and Home Bargains are continuing to expand at a rapid rate, and they are seeing positive results. B&M's latest Q1 results show +33.7% revenue growth, this followed a strong performance in Q4 of +6.6% like-for-like sales.

Other competitor Poundland, is evolving its proposition. As part of its move from single price to simple price Poundland is rolling out its new chilled and frozen range giving shoppers more reasons to visit the retailer.

In this very competitive environment it remains a challenge for Poundstretcher to stand out. The retailer had hoped that the rebranding of stores to Bargain Buys would help shoppers see it as a multi-price discounter. However with COVID-19 adding extra challenges to the market it is likely that it will need to find other ways to differentiate itself to survive.

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