Earlier last month Poundstretcher announced that it was buying Nottinghamshire-based JTF Mega Discount Warehouse out of administration, saving 230 jobs in the process.

The deal which involved the purchase from administrators of the brand and other assets by Bargain Buys, a subsidiary of Poundstretcher, also included a licence to operate nine other JTF stores, including Barrow, Hucknall, Hull, and Lincoln.

JTF, a 40-year-old retailer that sells a wide range of general merchandise, including homewares and garden furniture, alongside food & drink in its out-of-town warehouse-style stores, collapsed this summer when a deal to sell the business fell through.

Fast forward to now and JFT’s stores have started re-opening following a £500,000 fit out by its new owners and an injection of £1.5m of new stock. Poundstretcher also has plans to open 15 new JFT branches in the next 12 months.

A happy outcome of course, particularly in the current economic climate, but one which will undoubtedly come as a surprise to some given Poundstretcher’s own recent financial struggles.

Last year, Poundstretcher launched its own restructuring plan in the form of a company voluntary arrangement which sought to reduce crippling rents on hundreds of its stores.  A year later, the company is enjoying an £80m turnaround in profits, going from a £49m pre-tax loss to a £30m profit in the space of twelve months. And those pre-tax profits are likely be closer to  the £40m mark by the end of current trading year according to co-owner and chief executive of Poundstretcher,  Aziz Tayub who say they also have plans to open 40 new stores during the same period.

According to a strategic report, a renegotiation of the onerous rents which pre-dated the current owner’s involvement in the business  and the closure of loss making stores which were carried out as part of the CVA process have proved hugely successful for the family run business who are now  Leicestershire based. “Literally every store is profitable now”, according to Mr Tayub. Clearly however there are other factors at play in Poundstretcher’s journey back to financial fitness.

Business has been thriving for a lot of value retailers, including Poundstretcher, many of whom have been allowed to remain open throughout the pandemic due to selling essential items such as food and medicine.

Extra price sensitivity, reduced household income and a shift in the types of products consumers are looking to buy have all played their part in increasing the footfall of value retailers during difficult times.

However, for many in the retail industry, the pandemic has only accelerated a trend which has been gaining momentum for some time.

According to GlobalData, the UK’s discount market is set to grow by 36.1 per cent by next year, reaching £32.5 billion.  Essentially, what started as an infiltration of the grocery sector by German supermarket chains Aldi and Lidl in 2008 has evolved into something much greater. Value retailers outside of the grocery market such as B&M, Home Bargains and Poundstretcher who sell a range of toys, stationery, homewares, personal goods and food at lower prices, have been steadily expanding their presence.

Value shops are now destinations in their own right, often popping up in out of town retail parks or on the outskirts of town or city centres where rents are lower.

There has been a move away from poor quality products by value retailers who are now offering a broader range of good quality items at much cheaper prices.

Consumer shopping habits have also changed and the stigma around value retailers and shopping for a bargain is much less than it was.  Today’s informed shopper wants to purchase the cheaper quality alternative to an item they previously bought for a premium.

Growing up in a small town in the south west Scotland I can vividly remember as an awkward teenager refusing to go into the only value shop we had in our town centre, much to the amusement of my grandfather. Twenty years on I wouldn’t think twice about going into the same shop to buy what I needed at a fraction of the price. I can also be found whiling away many an hour in the home décor and gardening aisles of my local value stores, getting ideas and shopping for one-off purchases.

To put things in context, B&M has gone from having 21 UK stores in 2005 to over 673 today, as well as a subsidiary in France. According to reports, they have paid out almost £500m in regular and special dividends in the past year. Its market value is approaching twice that of Marks & Spencer. It also saw sales grow by 20% during lockdown.

Home Bargains, a similar UK format, has also expanded rapidly.  As reported in the Financial Times, The Morris family, owners of Home Bargains, are worth more than retail tycoons Philip Green and Mike Ashley combined.

Poundstretcher, a family run business established over 50 years ago, now has around 400 stores, and, as mentioned, is planning to open over 40 more.  The acquisition of JFT will further increase their footprint with each JFT unit typically covering 48,000 square feet compared with the 20,000 square feet of its Poundstretcher’s stores. Importantly, this will also give Poundstretcher a platform from which it can trade online for the first time through JFT’s online operations, which also includes a membership clubcard scheme and a database of 3 million people. Selling online is a departure for Poundstretcher which, like many other value retailers, has traditionally stuck to its bricks and mortar stores.

Looking ahead, it is likely that having an online presence will become increasingly important for those value retailers who don’t have one. The pandemic has increased the number of shoppers who are buying online, including value shoppers.

Many value retailers, including Poundstretcher, are already dabbling their toe in the world of e-commerce although the infrastructure needed for online ordering, home delivery and returns and the technology costs involved will not sit easily with their low price point. It has been suggested that “Click & Collect” and minimum order services might be a way of countering some of the costs which would be involved in a fully fledged online offering.

Other immediate challenges, while not unique to value retailers, will be the lack of stock caused by the highly publicised shortage of lorry drivers due to the pandemic, Brexit and other factors. The impact of this is likely to be less for those value retailers who run their own operations and source stock direct from factories in order to minimise their costs.

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