Poundland founder Steve Smith has warned that the discount chain's collapse could trigger a wave of high street bankruptcies, predicting a 'multi-billion-pound problem for the government' if the company enters administration.
Poundland is on the brink of collapse after its US-based owners, Gordon Brothers, rejected a takeover bid and filed a notice of intention to appoint administrators earlier this week. The uncertainty has left more than 12,000 staff jobs at risk across Poundland's 600 stores in the UK and Ireland.
Knock-on effect on suppliers and retailers
Smith, who founded Poundland in 1990 and sold it for £250million in 2006, believes the shop's collapse could trigger wider job losses of 30,000 and cause misery across the retail sector. He told Metro: 'I am gutted. Poundland has two or three thousand suppliers; a lot them only supply Poundland. So those businesses are going to suffer.'
'Poundland brings millions of people to shopping centres and the high streets every week,' he added. 'Imagine all those customers now, if there is no Poundland store there for them to go to. Then other retailers are going to suffer. There's going to be a lot more retailers going bust. This will have a massive knock-on effect.'
Sales rise despite administration threat
Gordon Brothers bought Poundland, which had been struggling, from the Polish retail group Pepco last year for a nominal £1. A note sent to suppliers and seen by The Sunday Times revealed that sales in Poundland stores rose by 8.4 per cent in the three weeks to October 18.
Despite this, Gordon Brothers notified the High Court that bankruptcy could be imminent, rejecting a rescue bid tabled by the Londonderry-based Martin Property Group (MPG). Smith said: 'The management team have done a good job. To find out they're going to be put it in administration is absolutely crazy. It is a crying shame.'
'It is not like Poundland is suffering; it is continuing to improve. Poundland could be here for another 30-odd years,' he added.
Government support and potential buyers
The former Poundland boss said he is 'waiting for a call' from Prime Minister Andy Burnham, who has said the government was 'ready to support' Poundland during the 'deeply worrying time' for staff. Smith warned that Poundland falling into administration 'is going to cost all the taxpayers billions of pounds if the government doesn't help out'.
'If you take even 12,000 people, that's half a billion pounds in wages a year,' he said. 'I'm estimating 30,000 people could lose their jobs. All those people are going to want to go on benefits. This is a multi-billion-pound problem for the government.'
It is understood Gordon Brothers wants to break up Poundland, with rivals Poundstretcher, B&M and Lidl interested in potentially buying up its stores. Smith claimed he had been trying to buy back Poundland for months, but that Gordon Brothers 'won't even speak' to him. He said it would now be too late for him to put together a rescue attempt, and he was supporting the bid by MPG.
However, a source familiar with the sale process told Metro that Gordon Brothers claim they had not heard from Smith. The source added that Gordon Brothers believes they are taking the path that was 'the best option to preserve jobs and to make returns for creditors', because their sales plan would see 'established retail operators… bolt on scores of stores to their existing operations'.
'These recognisable brands then take these employers on and move them on to their pension schemes and on to their employee benefits,' the source said.
Gordon Brothers has previously said: 'While Martin Property Group had been identified as the preferred bidder by Poundland's management team, attention must be paid to properly evaluate all active bids. These options are being thoroughly and objectively evaluated, with a view to minimising uncertainty for Poundland's people and all relevant stakeholders.'
