Poundworld: What went wrong (Part II)

Earlier this month, Poundworld officially fell into administration, threatening 5100 jobs across 350 stores. The Retail Gazette takes a closer look at what went wrong at the once rapidly expanding discount giant.

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December 2017: Poundworld’s chief executive of just two years Gerry Gray jumps ship, creating the first warning signs for the troubled discounter.

Though Gray cited his departure was due to personal reasons, he was likely aware that since his appointment in 2016, Poundworld has seen two consistent years of dramatically dropping profits.

Steve Johnson, the former chairman, would now act as chief executive in Gray’s absence.

 

April 2018: Seemingly out of the blue, a Sky News report reveals that Poundworld is planning to undergo a CVA and was seeking creditor approval.

It would later emerge that Poundworld struggled to recover its sales numbers throughout the vital Christmas period, adding to its financial woes.

Perhaps one of the key red flags for Poundworld during the first quarter of 2018 was when its credit insurance was cut.

The insurance is designed to protect suppliers should a company go bust before they have paid for their goods. It is often withdrawn or rates are severely increased when retailers show signs of financial struggle, and many suppliers demand payments immediately.

Not only did this mean Poundworld faced a £6 million bill to its suppliers, but also led to a difficult Christmas period, as it suffered from stock availability issues.

 

May 2018: Despite its financial reputation taking a beating following the revelations of a proposed CVA, some hope remained for the retailer as the process was put on hold in favour of a sale.

Deloitte was drafted in to find a buyer for Poundworld, and its American owner TPG reported that various parties were interested.

With CVA’s beginning to make headline news in the retail sector, throwing their efficacy in saving troubled retailers into doubt, a sales process was seemingly the best option.

This would eventually prove to be a fatal move, as delaying the restructuring process until it was eventually too late meant it was forced to enter administration.

 

May 2018: Ten days later a document laying out its in-depth proposals for a CVA and the financial troubles it was facing was leaked.

It revealed that it had planned to shutter nearly a third of its stores, laying bare the scale of its loss-making estate.

Poundworld had also requested £15 million in emergency funding from Santander once the CVA has been approved.

This is significant as it shows its owner TPG was unable to provide it with any further support, taking massive hits from its other businesses including Prezzo, which was also undergoing a CVA.

The release stated that TPG had already provided Poundworld with a £20 million cash injection in February, but this had reportedly already been “utilised”.

Its ability to hemorrhage £20 million in a matter of months without managing to improve its situation, highlights some severe faults within Poundworld’s management.

In the week following its administration its former boss Chris Edwards, who sold Poundworld to TPG in 2015 for £150 million, said he believed the brand could be saved but only if new management was brought in.

“B&M Bargains hasn’t gone, Home Bargains hasn’t gone, Wilko hasn’t gone,” he said.

“So for every store that goes down others are still thriving. It’s about management style, that is what makes the business work.”

 

June 4 2018: Alteri investors, renowned for turning around distressed retail businesses, was reported to be close to securing a deal with Poundworld’s owners.

The deal was thought to be for a nominal sum, and if it were to have gone ahead, Alteri would have pushed through the CVA.

 

June 6 2018: Poundworld’s desperation worsens as Alteri walks away from negotiations, making administration a distinct possibility.

Little light has been shed on why the talks between Alteri and Poundworld broke down.

TPG remained adamant that other potential buyers had expressed interest, including US firm Flacks, although they are not thought to be a serious contender.

Edwards was also later revealed to be in talks to buy part of the business back, but stated he was looking for partners to fund the acquisition.

 

June 11 2018: Poundworld officially appoints administrators after a second round of rescue talks falls through.

R Capital was also reported to have walked away from talks, and again the exact reasons remain unclear.

This left Poundworld and TPG no choice, with debt obligations looming and a CVA now off the cards, Deloitte was hired to handle the process.

“This was a difficult decision for every party involved. We invested in Poundworld because of our belief in how the company serves its customers and the strength of its employees,” a TPG spokesperson said.

“Despite investing resources to strengthen the business, the decline in UK retail and changing consumer behaviour affected Poundworld significantly.”

Deloitte joint administrator Clare Boardman added: “We still believe a buyer can be found for the business or at least part of it and we are keeping staff appraised of developments as they happen. We thank all employees for their support at this difficult time.”

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