Steinhoff’s £597m acquisition of single-price player Poundland is a smart strategic move, although it will face considerable challenges in making it a real success, according to Greg Bromley, senior analyst at Verdict Retail.

Steinhoff signalled its intention to buy Poundland before the Brexit vote was cast, with the acquisition now looking an even savvier move, said Bromley. “Discount retailers have continued to thrive in the UK over the past few years, and any downturn in consumer confidence off the back of Brexit is only likely to further play in to their hands.”

However, there will likely be some significant challenges ahead for Steinhoff despite having some experience operating in UK retail, in the furniture market through its Bensons for Beds and Harveys fascias.

“Trading in the furniture market is far removed from the expertise needed in terms of product sourcing and supply chains required to maintain a successful single-price business like Poundland, where profit margins are wafer thin.

“Where Steinhoff does benefit is from its knowledge of the discount market globally – it operates discount chains, Pep, in southern Africa and Pepco in eastern Europe. This should help guide its strategy, but also to overcome any currency issues that it might face from the weakening of the pound.”

With a weaker pound set to increase overseas sourcing costs, Poundland’s adherence to its rigid price points could come under threat.

“A move to open more multi price stores seems likely and Steinhoff may well be keen to pursue the growth of the Poundland & More format, the retailer’s first foray into multi-price retailing launched as part of a trial earlier this year,” said Bromley.

“As well as presenting an opportunity for Steinhoff to safeguard its margins through greater flexibility on price, it also allows the retailer to tap into the fast growing multi-price discount sector, a move that will set it on a collision course with the rapidly expanding B&M and Home Bargains.”

Poundland is currently undergoing something of a period of transition in the UK since its acquisition of 99p Stores. This has left it with a huge portfolio of over 900 outlets and Steinhoff will have to ensure each of these trades successfully, especially as competition in discount retail intensifies and the market becomes ever more saturated.

Access exclusive analysis, locked news and reports with Inside Retail Weekly. Subscribe today and get our premium print publication delivered to your door every week.