Poundland warns customers are already cutting back on essentials

The owner of discount retailer Poundland has warned that its UK shoppers appear to be suffering most as the cost of living crisis gathers pace, with spending on essentials even taking a knock.

Pepco Group, which also has the European discount brands PEPCO and Dealz in its stable, blamed UK wage growth sagging below the rate of inflation – currently at a 40-year high and predicted to climb further in the coming months.

The Warsaw-listed company said that while inflationary pressure was greater in its central and eastern European markets, higher rates of wage growth there were currently offsetting the impact to sales.

“Specifically in the UK, the cost-of-living crisis has impacted customers’ disposable income as they scale back even on essential purchases in the short term,” Pepco said.

The company said it was looking to mitigate the pressure on its own prices through cost-cutting, including through a greater use of self-service tills, while also absorbing some of the costs it was facing.

“Our continued focus on reducing the costs of doing business means that we are able to offset some of our input inflation, allowing us to protect prices for all of our cost-conscious customers,” Pepco added.

It revealed a £30m group-wide investment on prices during the first half of its financial year to 31 March.

It meant, Pepco said, that its gross margin had taken a 137 basis points hit.

Poundland revenue over the six months rose 11.4% to £940m – aided by new store openings.

Despite the growing trend of consumer caution, Pepco reported that its Poundland business was still trading ahead of pre-pandemic levels, winning market share and expressed confidence that its discount position would thrive as the outlook for the economy slows.

Interim finance chief, Mat Ankers, told the Reuters news agency: “We’re a value retailer, this is our time, this is when we can really drive our agenda.

“The best strategy to navigate the current times is to grow and to create scale,” he said, noting the group opened a net 192 stores in the first half, taking the total to 3,696 across 17 countries.