The owner of Poundland has warned that the cost of living crisis is driving UK shoppers to reduce spending even on essential items, as wages fail to keep pace with soaring inflation. Pepco Group, which also owns Dealz in Ireland and the Pepco chain across Europe, said that while inflationary pressures are higher in central and eastern Europe, stronger wage growth there is offsetting the impact.
In western European markets, however, the acute spike in inflation combined with stagnant wage growth has led to lower consumer spending. Specifically in the UK, the cost of living crisis has hit disposable income, with customers scaling back on essential purchases in the short term. UK inflation reached 9% in April, the highest in over 40 years, while wage growth excluding bonuses stands at just over 4%.
Pepco said its profit margins have suffered as it tries to absorb some cost increases, and it is looking to make cutbacks to keep prices low for cost-conscious customers. Despite this, sales rose nearly 19% in the six months to 31 March, and profits increased by almost 29%, driven by the opening of 235 new stores across Europe.
The warning from Pepco came as furniture retailer DFS reported a decline in orders since April, with order numbers down about 2% on pre-pandemic levels. Analysts said this was roughly 50% lower than last year, leading to a nearly 16% drop in DFS shares and expectations of profit cuts by more than a third.
Pepco CEO Trevor Masters said the company has maintained its market-leading position on prices and shielded customers from price rises on some products amid significant inflationary pressure on household budgets. The group noted that sales have risen above pre-pandemic levels in the eight weeks since the year end, with Poundland's underlying sales up an average of 4.3% per week. However, the war in Ukraine has exacerbated supply chain disruption and inflationary headwinds, partially offsetting the boost from an influx of refugees in bordering countries.
