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How to start a pound shop

Learn how to launch a discount pound shop that will have you raking in the profits with our comprehensive business guide

Starting a pound shop: Opportunities

In spite of modern thinking that suggests that people have more sophisticated tastes and are only interested in products branded, the pound shop is a common sight on high streets up and down the country. Despite the fact that they might not be the sexiest of shops – whether in front of or behind the counter – that doesn’t stop them from being profitable, particularly as the credit crunch tightens its grip on high streets and consumers turn to discount retailers to keep their costs down.

Even though pound shops were helped by the recession, the combination of consumer demand for value products and cheap retail space, as high street brands such as Woolworths fell by the wayside, has led to an increase in pound shops in recent years. The number of shops with pounds in their names has doubled in the last ten years, according to data specialists Experian. There is no direct connection between the recession and the increase in popularity of the pound shop, as stores were already numbering 628 by 2004, several years prior to the start of the credit crunch.

UK’s original pound shop, Poundland, was the originator of the pound shop phenomenon. Located in Burton-on-Trent at the end of 1990, the store opened its doors in a shopping center with trouble attracting tenants and took a staggering £13,000 on the first day it was open. The ‘Aldi effect’ spread and in March 2008, the chain with more than two thousand products on its shelves reported gains of 122% to £8 million as more stores followed. Those are a lot of pound coins.

Len Griffin, company secretary of the Association of Independent Retailers, says that pound shops have been around for a long time and people are comfortable shopping there.

Unlike antique shops and flea markets, pound shops provide a unique shopping experience, since you never quite know what great deals you’re going to come across. It doesn’t matter if what you buy is not all that great, you only spent a pound on it.

How do I go about finding premises?

Although pound shops are fairly common, finding the right place to open a shop has not been made any easier by that fact. Finding a suitable and affordable property to rent or buy, as it is with many retail businesses, remains one of the most difficult tasks of starting a business.

When the store is in a good location, it tends to be owned by a corporate fund that is only interested in national chains because they can convince them to sign long leases and know they can afford high rents. In addition, finding suitable premises is even harder for potential pound shop owners, since selling low-ticket items means there must be as much stock as possible displayed – so a good-sized shop is a must.

The owner of a pound shop with its own website, poundshop.co.uk, alongside another venture, smellybits.com, believes size matters, and even a pound shop has a website. When you are selling low ticket times, you are gambling, because you are literally going to make pennies off of each item, so volume is the key. It is imperative that you have a large stock handling outlet that will be able to accommodate large volumes.”

Despite the fact that you might not be able to afford your first or second choice, don’t despair. There is an advantage to pound shops, for example, that they are often more successful in less obvious areas rather than in trendier and more expensive ones. Customers who are looking for a bargain are willing to travel a little bit further to find you if they know they are going to save money. In addition, you can consider getting initial financing to help get you started.

The things you should stock in your pound shop

One of the most difficult skills for a shop owner to learn is choosing the right products to sell in their shop, but for a pound shop owner, it is made simpler by the fact that they only have to focus on goods they can sell for a buck.

Experience is the only way to learn, and you can only learn by making mistakes. However, once you start working for yourself, you should start getting a feel for what sells by keeping an eye on what’s flying off the shelves and what’s not.

Running a pound shop is rewarding when you get the process down, and you start seeing items you ordered fall into the hands of customers who are grateful to you for offering them at such low prices.

According to pound shop owner David Wilson, if you think it is a good line, you might order four dozen each, and if it sells out in a day, you would then order 40 dozen more. As much as knowing when to start ordering a line, knowing when to stop is equally crucial so that you aren’t left with a dwindling inventory in a saturated market.”

Whether to stock branded products, those made by companies known to your customers, is one of the decisions you will have to make. As a result, you are likely to get a higher markup on the goods, but you will be taking more of a gamble on whether you can sell them. If you sell low-quality products, customers might be willing to try the product once, but they are unlikely to come back.

Wilson says that the public wants more and more for their money today, and they usually get it. “The lines we sell now are much better than those we sold five years ago, but the price has remained the same.”

Generally, toiletries such as soaps, deodorants, and lotions sell well if they’re branded. This is due to customers feeling more comfortable about slapping something on that isn’t going to sting them. However, household cleaning products like floor wipes and bleach don’t necessarily need to be recognized brands in order to be sold. There is a rule of thumb in this particular sector of goods: the more you get for a pound, the better.

The forecasting process

Picking products for your store is an ongoing process, and seasonal variations, most notably for Christmas, should also be considered. Retailers will tell you that the festive season constitutes much of their profits for the rest of the year, and pound shops are no exception. Therefore, you will need to begin thinking about bringing in discount items such as decorations, Christmas card packs, and other stocking fillers well in advance in order to maximize your sales. As a result, you will also need to lower other stock levels to accommodate this, so plan ahead far enough in advance. Throughout the year, the same process will be repeated from Valentine’s Day to Bonfire Night via Easter and the summer holidays.

Small retailers can take advantage of the massive advertising campaigns carried out by the big retailers on the latest products and seasonal gifts, like Easter eggs, Len Griffin of the Association of Independent Retailers says. The average shopper won’t just go to the store they saw on TV when looking for a particular product; they will want to shop around for the best price, which is where discount stores stand out from the competition.

An owner of a pound shop needs to forecast more than just seasonal variations. Discount retailers should be able to identify trends on the high street that they can take advantage of while operating. In the toy market, items like yo-yos, water pistols and so on come in and out of style – so if a retailer can offer a discount version of the latest toy, they’re likely to have a lot of happy parents.

The process of finding a supplier

Selecting which items to stock is a skill that you’ll need to master, but finding companies that can supply them is also not as simple as you might think. Discount wholesalers exist and while viewing the phone book is a good way to start, the problem is many suppliers often rely on word-of-mouth advertising and local contacts to attract new customers.

The majority have made their way online, and there are several subscription-based sites that can point you in the right direction for a fee.

There are also two major trade shows each year for people getting started in the discount retail market: Spring Fair International at the NEC in spring and the Autumn Trade Show in September. Attending these shows is worth the time and effort since all the major suppliers are present. Besides these general magazines, there are a number of more specialized publications, such as The Trader, that contain useful lists.

How to start a pound shop

Getting a supplier’s contact information is difficult, but getting them to sell you their goods is easier. Getting your hands on millions of pounds worth of goods isn’t that difficult and they’re just as happy to sell to sole traders as they are too large corporations.

When you have to pay for it and store it, that’s when it gets difficult. Even if you have a good credit rating, if you’re starting with a new supplier you need to remember that they will more than likely want payment before the goods leave their warehouse.

Developing a successful relationship with your supplier will make a huge difference in your future success. It is important to communicate with them well so that they can help you find the items that sell as well as those that don’t, and it makes sense for them to recommend the best lines to you because if they try and force you to buy an item which doesn’t sell, you won’t have the cash for a repeat order.

Furthermore, they need to be reliable and able to deliver on a weekly or fortnightly basis. A plan for delivery dates is important because, without it, you will have no chance of staying on top of your stock control. Without the ability to offer their favourite items on sale every week, you’ll soon lose these repeat customers.

Pound shops and the reality of running one

Now that you have your premises, your stock, and your supplier, you need to start thinking about general business issues. Even though your goods are inexpensive, that doesn’t mean you won’t have to adhere to all the official regulations and red tape that come along with owning your own business. All of these issues still need to be addressed, including taxes, national insurance, VAT, and health and safety.

When it comes to retail recruitment, you rarely need to do anything more than post an ad in the local paper or put up a notice in your window. Depending on the size and scale of your business, you should have access to either mature workers or teenagers who will mostly work part-time. When you have your team in place, chances are, if you decide to add more people, you’ll probably get them via word-of-mouth or through talking to other businesses.

Taking all this into account, you can begin thinking about making a profit. You have a good chance of building a good customer base at a pound shop, and your customers will probably spend more than they anticipated.

Customer satisfaction will be enhanced even further if you can keep adding new lines each week. Once your customers start realizing that your pound shop items are much cheaper than those at their local supermarket and that they will always be the same price, you’re on to a winner.

Of course, it’s always nice to be able to figure out how much your goods are worth before you make it to the cash register! David Wilson, the owner of the pound shop, says he hears customers say, “I only came in for shampoos and now I have a basket full.”.

The management of a pound shop

Although you’ll be popular with your customers, don’t expect the same treatment from your fellow shopkeepers because you’ll probably be busier most of the time and you’ll probably undercut their prices. It’s always important to remember that you’re a store just like any other. This includes selling products, managing staff, and paying taxes. Keeping an eye on all this while also watching your profit margins is the key to success.

The main reason new retailers and shopkeepers fail is that they don’t think like business people, says Len Griffin. Their minds aren’t focused on making money. Instead, they become far too engrossed in the operation on a day-to-day basis and become employees of the enterprise, so they become managers instead of owners.”

In addition, it will be an advantage if you’re physically fit – since there will be a lot of stock shifting to be done – and make sure you don’t freak out when there are so many customers in the shop. Although each shop is different, you should aim to be able to keep 25% of what ends up in the till after the VAT-man cuts 17.5 percent off.

Having said that, all your overhead costs, such as wages, rent, insurance, etc, will be deducted from this amount. If there is anything left over, it is yours to keep, but only after you have dealt with your own taxes. Here, we’re not talking about millions, but you ought to have a nice payday.

Here are some tips for pound store success

Even though every item in a pound shop is the same price, it doesn’t make the business any less complex or fraught than any other type of retail business. In order to make sure your venture goes as smoothly as possible, David Wilson recommends keeping the following points in mind:

  • The premises: Don’t go for a long lease, but rather a short one or at least one with a break clause because you may not get it right the first time. Retail and economic circumstances change in town centers and you could find yourself in a backwater with a high rent to pay – if you can’t get out of the lease, you could lose everything. “One of my units was located in a shopping mall in Oxford Street, London, where it would seem it would be easy to steal. In the beginning, it did well, but after a few setbacks I was taking less than half of what the shop in rural Cornwall was taking, but with four times the rent! It was fortunate that I had built a break clause into the contract that we were able to exercise before it consumed all our funds.
  • Providers: Develop your own suppliers you can rely on, and who should have a good supply of new products available to you. Additionally, make sure you have a personal contact at the head office who can assist you if you encounter a problem. And when you buy from clearance houses, remember that some items will sell fine, while others will not sell anywhere, for some unknown reason.
  • The stock market: Unless you are a spectacularly confident buyer, it is advisable to hold five to six weeks’ worth of stock. As an example, if you calculate that you need to take in £5,000 per week to cover all your expenses and pay yourself a wage, you will need six times this amount in stock, £30,000 at retail price, so at an average of 25% profit margin this means you need to spend £22,500 (£30,000 less 25%) on stock alone before you have opened your doors. This amount does not include the three months’ rent you will have to pay in advance and the fixtures and fittings you will need.
  • Marketing expert: The marketing expert once told me that your staff is your best friend. You should reward your staff so they are happy, which in turn will make your customers happy. You also need staff who you can trust. It’s so easy for them to steal the odd £1 coin, but remember – for every £1 which finds its way into someone’s pocket, you have lost the profit from the next four or five sales.

Related:

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