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A musical starter that introduces most elements of economic environment... in the funkiest way possible!
Setting up a business is hard enough. Setting it up in this economic climate is nearly impossible. So entrepreneurs are having to seek out some imaginative solution. With banks seemingly reluctant to lend to new and smaller businesses, start ups are having to be more imaginative in how they raise cash to get going. This Channel 4 news report looks at the growth of unregulated peer to peer lending such as Zopa, Rate Setter, Funding Circle and KickStarter.
The UK’s peer-to-peer lending market remains small in the context of total commercial bank lending but it has trebled in size in just three years. According to a new report from the Open Data Institute, "lenders have been attracted by the relatively high rate of returns available by lending in this market, given the current low yield in bank and other conventional debt instruments."
John Lewis are opening a store at Heathrow terminal 2, which will be the Partnership's smallest store, the first away from town and city centres and an important step in their international strategy. For a while I’ve been looking at the idea of place in the John Lewis marketing mix, and the business has clearly identified deeper trends in retail location.read more...»
The textbook section on finance is sometimes a bit far from the mark when describing how firms (especially the biggest) raise finance in reality. Several years have passed since the ‘Credit Crunch’ of 2007/08 and big problems remain. Business lending has now been falling steadily for four years, and is 20% lower than in 2009.read more...»
One of the strengths and a key component in the Co-Op Bank's USP after recent banking problems - sub-prime lending, collapse of Northern Rock and LIBOR rate fixing, was its emphasis of ethical banking.
Whenever you are investigating a firm’s accounts – perhaps using ratio analysis – you quickly realise that the answers you’re generating only really make sense when you compare them against something, like last year’s figures, or those of a rival.
My students are looking at a case study (OCR F297) in which a firm is making a return on capital of approximately 11%. We were wondering if that was a ‘good’ return or not. I’ve come across an article that directly answers that question, and raises some other points that offer a revealing insight into the health of Britain’s businesses.read more...»
The effect of the economic downturn on small retailers, and how they are adapting, is explored in the powerful video below from the FT.
First up is a bespoke tailor trying to survive in a poor area that has been significantly affected by government spending cuts to welfare payments.
In the same location is a retailer of sporting goods. His business has changed dramatically in recent years, with demand much less predictable. Cash flow management has become much harder, so he has responded by cutting stocks and repositioning his retail product range. Can he survive against the likes of Sports Direct?
Finally, we see the effect on a furniture retailer of the emergence of pawnbrokers and other loan shops.
For these retailers, costs are rising but sales are falling. The future for these high street retailers looks bleak. Can they survive? And if so, how?read more...»
A lot of people will be saddened - but probably not shocked - by the news that HMV looks like it may be the latest casualty amongst big-name retailers. There's a lot of coverage of this story, so I've put together several links and questions to encourage you to consider some independent research on what's gone wrong, and what may be the way forwards from here.
I'm enjoying using Storify at the moment, and the links and suggestions for the HMV story are all posted here.
This afternoon The High Court appointed PricewaterhouseCoopers as Administrators of Jessops the high street camera retailer. The company has debts of £80m.read more...»
If you've noticed the high-profile Christmas campaign for Aldi this year (see the two example videos below) you may be interested in this article from Yahoo which gives a few pointers as to how the company have managed to turn the recession into a major profit-making opportunity.
Whilst the major TV campaign shows that Aldi are now in a position to market themselves to directly compete with Morrisons, Sainsbury's et al, the article shows how the key to their success lies in the 'Product' aspect of the marketing mix - their profits up by an incredible 200% over the last two years. By minimising the use of big-name brands and concentrating on giving value-for-money with their own home-branded products, Aldi have given cash-conscious consumers a genuine alternative to the more established supermarkets in the UK.read more...»
Ah! If you’re roughly my age you’ll remember brands like Mr Kipling cakes, Bird’s custard, Ambrosia creamed rice – even Smash (a bizarre powdered potato product that somehow offered futuristic promise). These products are still around, but their owner, Premier Foods, is struggling for survival and badly needs a plan to manage its portfolio of brands – and even to survive.read more...»
This edition of Channel 4's Dispatches programme looks like it will be well worth a watch - and even better, recording. Could be packed full with business studies discussion and learning opportunities.
Monday 17 September 2012 at 8pm is the screening date/time for this programme which investigates the business of booming discount retailer Dispatches.read more...»
The car industry is such a good place to go for examples of Business Studies in action. Here, the problem under discussion is capacity utilisation. This concept is very closely linked to the idea of a breakeven point.read more...»
Yesterday I saw that Poundland was about to open its 400th store. I was also re-reading a Business Café article I wrote in 2007 which commented on the behaviour of supermarkets and the problems ASDA was experiencing:
Four decades ago, almost a quarter of household expenditure went on groceries, compared to just 9% now … A 2006 study by IGD a grocery-industry think tank, found that just 42% of shoppers consider cost when choosing which foods to buy, down from 46% in 2003.
“(ASDA) talk more about cheap prices than about quality food,” says Nick Harrison of Mercer Management Consulting. “That just reinforces a perception that the quality may not be as good.” A lot of people think that Asda have missed out on other trends like the rise of celebrity chefs and ‘posh’ food, including organic groceries.
How times change. In this example, I’m particularly interested to reflect on how attitudes and consumer responses to pricing has changed significantly. The link between price and demand is measured by price elasticity.read more...»
The allegations of price fixing of Barclay’s LIBOR rates have led to the resignation of The Chairman Marcus Aegis on Sunday night, politicians, and journalists wondered if Bob Diamond, The Chief Executive ought to be on his way out instead.read more...»
It must be awful to become personally bankrupt. So awful in fact that it’s widely believed that potential investors must be afforded some protection against the risk. That lies behind the idea of the limited liability company.read more...»
Once again the BBC have posted up a clip that clearly and concisely (in two and a half minutes) neatly sums up the marketing challenges faced by the main UK supermarket chains: store locations, types of store, products, promotions, target markets … and prices.
On that point, there’s also more detailed news published recently about Waitrose matching Tesco prices, getting marketing mileage out of the John Lewis ‘never knowingly undersold’ pledge.read more...»
In just the last few days we have learnt that the economy has entered a ‘double dip’ recession, with the economy essentially stagnant since the peak of the economic crisis passed in summer 2009. What does all this mean for the UK housing market – the central focus of the OCR F297 A2 case study?
This blog contains extracts from the F297 case study toolkit, as well as some extra comments, links and analysis.read more...»
A ‘crossover’ blog here, since most Business students will be spending at least some of their time thinking about the external environment that firms operate in. For most businesses, the dominating external issue has been the deep recession – a long period in which the UK economy has struggled. Analysis from The Economist suggests that the economy has taken so much damage we’re basically back to where we were in late 2003! A pretty depressing thought, but there are some signs that things might be picking up.
What follows is a link to an article giving reasons to be optimistic, and to a short series of blogs from last year that take you through what you need to know about economic ‘fundamentals’ at A2 level.read more...»
The development of the budget hotel sector has been very interesting to follow, and the latest chapter sees Travelodge looking for financial assistance as it steadily sinks under a mountain of debt and rising costs. Here are some fairly simple numbers to show you how ratio analysis can be used to measure the size of the problem.read more...»
I’ve been delving into the datasets on the ONS site to pick up some evidence about the scale of takeovers and mergers involving UK businesses. Having worked in M&A during the 1990’s and early 2000’s, I remember the various short-term peaks and troughs of activity that the takeover market seemed to go through. However, I wanted to get a better sense of longer-term trends. Here’s what I found.read more...»
Such is the importance of Tesco’s and their dominance of the retail market that the effect of a 2.3% drop in their like-for-like sales knocked almost 16% off their share price yesterday. Perhaps not so much a reflection of the figures themselves - although they compare poorly with Morrison’s and Sainsbury’s both of whom managed to increase their sales over the same period - as the admission by the new CEO Philip Clarke that Tesco’s got their strategy wrong, both in the short and the long term.read more...»
You may already know about Tesco’s overseas expansion strategy, and its Fresh & Easy venture in the States. The US expansion is taking place in challenging economic conditions and according to The Guardian, the business is ‘mothballing’ a second wave of Fresh & Easy stores, suggesting that the supermarket group’s loss-making US start-up has hit another bump in the road.read more...»
So results are trickling in from the major High Street retailers, with figures for their performance over this crucial trading period.read more...»
The woes of the UK High Street had begun long before the Credit Crunch and recession. It seems that a combination of factors (think PEST analysis) have combined to create the difficulties that are squeezing this traditional sector of business activity. Nobody has the answers to saving the High Street, but Mary “Queen of Shops” Portas has given it a go.
Why not try this exercise for yourself?
Firstly, use a form a marketing analysis like PEST or the Porters’ 5 Forces model to identify where the problems lie. Secondly, make 3 recommendations to either firms or governments as to how they might resist the decline (there’s some background here to help). Then read on…read more...»
Photographs of flawless models with tiny waists, perfect bums and endless legs, may hold the attention of consumers, but is it ethical to use computer generated images to promote a firm’s clothing ranges?
You’ll be well aware that this Christmas the supermarkets are trying hard to lure customers with bargain prices. Pricing is of course a vital component of the marketing mix, perhaps especially so in the current economic climate. Investigative journalists on the BBC show Panorama have been digging deeper; to see if the supermarket offers are all they seem…read more...»
Consumers are cutting spending, unemployment is expected to rise over the next year and in a week of ever-gloomier forecasts for the economy, business and consumer confidence has been dropping like a stone. So what do Starbucks, Hilton and Marstons know that the rest of us don’t? All three have chosen this week to announce expansion in the UK - Starbucks with a market development move to open 200 drive-through outlets, Hilton with expansion of over 20 new hotels (part of a plan to open 110 across Europe) and Marstons with a market penetration plan to build 19 new pubs this year and a further 25 a year from 2012.
Good news all round - how nice to see some evidence of growth amidst all the dire news about the economy. But it is intriguing to see these plans just now - where do they get their confidence from?
[updated 17 October 2011]
News of the confirmed speakers for our popular EntrepreneursLIVE! 2011 events taking place in London (14 Nov), Birmingham (15 Nov) and Manchester (16 Nov). We will update this blog entry with the final confirmed speakers once they have cleared their diaries for the day!
Don’t forget that students attending EntrepreneursLIVE! 2011 can also enter the Breakfast Enterprise Challenge on the day. Details hereread more...»
Some of the UK’s biggest grocers lost market share to cheaper rivals in the last three months as household incomes came under further pressure, according to this useful article in the Guardianread more...»
With over 4,500 business studies blog entries now available, there is a long tail of content for blog readers. However, the following were the top 20 blog entries in September 2011 based purely on page views.
Have a browse to see if there is something you missed…read more...»
Further evidence that the economic downturn hasn’t affected everyone equally: there are still groups of high income consumers out there. Effective marketing requires firms to target groups of consumers with similar buying habits – or market segments. Waitrose are gambling on their target market with a £15m refurbishment of their Canary Wharf store, featuring delights such as wines at up to £425 a bottle.read more...»
We’re currently receiving daily reminders of the problems on the UK High Street. Today it’s Thorntons, following on from Jane Norman, TJ Hughes and Homeform, which controls Möben Kitchens, Sharps Bedrooms and Dolphin Bathrooms. Habitat, HMV, Waterstones – the list goes on and on. Do these high profile business failures threaten the High Street? And what is behind their problems?read more...»
“Plan A” is that the economy grows rapidly, pulled along by high levels of demand from business investment and rising exports. The government and consumers can spend less and pay back debt.
There are plenty of potential problems with this route map to recovery. But there’s good news too. I was amazed to see data on how much cash is being hoarded by UK firms – potential fuel for the kind of expansion we’re hoping for.read more...»
An interesting article here in the Telegraph which highlights the problem of late-payment of supplier invoices as firms look to find ways of improving their cash flows. Businesses of all types use trade credit as a key source of short-term finance - it is perfectly acceptable and a normal part of doing business. What is less acceptable (from an ethical point of view) is deliberately stretching the time taken to settle amounts owed to suppliers, often well beyond the agreed date.
The article explains that, based on the three months to December 2010:
“Large companies turned the screws on suppliers, paying their bills 36.7 days later than agreed terms, up from 35.9 days in the final quarter last year. But small companies recorded the largest increase in their late payments, taking on average more than 22 days to settle invoices – three days longer than the same period last year.”
Why are firms taking longer to pay? A good question for students, who ought to be able to identify some advantages and disadvantages of extending trade credit beyond agreed contractual terms. Is the increase a sing of worsening cash flow problems? Are suppliers not chasing hard enough for payment? Was it the disruption caused by the snow? Many firms may have tried it on by explaining that they had “sent the cheque” but that it was “stuck in the post & snow”.
This new government initiative is very well timed for AQA BUSS4 students!
Culture secretary Jeremy Hunt is aiming to kick start a culture of corporate philanthropy this year to fill the gap left by public spending cuts. In this radio report, lasting just under 4 minutes, Will Gompertz reports on the aim to bring together the need for sponsorship of the arts or sport, with a corporate desire to be seen to get involved in the Big Society and provide that support.
Mr Hunt suggests that banks, which have suffered such a downturn in their public image, might find this a good way to rehabilitate themselves. But with an 18% drop in business donations, this is going to be an uphill task for the minister. What would their other stakeholders think?
This brief report could provide a good bridge from teaching the introductory topic of Stakeholders, to two of the new research themes on CSR for BUSS4 students:
(1) The potential benefits of Corporate Social Responsibility relative to the costs for businesses and stakeholders
(6) The extent to which governments should influence Corporate Social Responsibility
This lesson plan and associated resources, which are produced by the Citizenship Foundation, explain the credit crunch and also the Chancellor’s annual Budget. They are a great way to introduce students starting on AQA unit 4 to the thankless task that a Chancellor of the Exchequer has in trying to decide the best way to raise tax revenue and cut spending.read more...»
The last few years of choppy waters and a tougher business climate has pushed the economic environment further up the agenda for Business students. Firms look back with nostalgia for the NICE era (with non-inflationary, continuous economic expansion) that began around 1992 but came to a shuddering standstill by 2008.
Here are a few links (outside T2U) that might help you illustrate the changing economic environment. I’m starting with The Guardian, whose business website is catching up with other sources, and is a site I now regularly visit.read more...»
The main topic of this story on the BBC website is a new report by the British Chambers of Commerce, which says that while the UK’s service sector is suffering domestically, many manufacturers are enjoying an export-led boom. It gives a great example of clockmakers Smiths of Derby, who were suffering from a lack of domestic demand in the recession for their expertise in renovating and maintaining clocks around the UK from St Paul’s Cathedral to Arsenal’s Emirates stadium.read more...»
I fear for JJB Sports plc. In the run-up to Christmas I’ve had cause to get involved in a lot of sports-related shopping, both online and on the high street! I’m not convinced that there is still a viable business model for a national chain of sports sports which genuinely specialise in sporting goods (equipment and clothing).read more...»
This report on the BBC website highlights the shift, in times of austerity, away from browsing the High Street for luxuries towards browsing the web for bargains - one result is that on average 14% of shops in the UK are vacant, a massive increase from 10.5% a year ago. But, as ever, the answer to ‘Is the British high street a good location for retail businesses?’ is “It depends….”read more...»
General Motors (GM) – for decades the world’s biggest carmaker – have broken the record for the largest ever sale of shares, raising a whopping £12.6bn. Their shares rose 7% to $35.99 in early trade in New York, having been priced at $33 by the company. The sale marks what looks like an astonishing turnaround after the firm had to be rescued by American taxpayers in 2008.read more...»
Pontins is the latest household name to fall victim to recession and the credit crunch. They have been put into administration, meaning that the future of the company is uncertain, for both staff and customers. The problem is that the banks are no longer willing to give them credit – so although they have customers willing to buy, they face the possibility of business failure due to a lack of cash flow.read more...»
Over 10,000 colleagues have now downloaded our cash-flow murder mystery activity - Cash Flow Clue-doh! And we’re getting an increasing number of enquiries asking what the solution is!read more...»
According to The Economist the consumer goods multinationals like Procter & Gamble (P&G) and its archrival Unilever, had a grim time last year: profits plummeted. This year has been only slightly better. Economies are still ailing, and the cost of raw materials is climbing. But there is something else happening. Basic consumer goods were long assumed to be more or less recession-proof. Shoppers may not be able to afford Dior dresses or Cartier watches, went the argument, but they still need loo paper and detergent. Yet people are finding ways to save money even on daily necessities.read more...»
An interesting short BBC article that reports that the number of new businesses set up in the UK during the first six months of 2010 was the highest amount in more than a decade. This was a 51% rise on the first six months of 2008, when the UK first went into recession.read more...»
The recovery may be a bit feeble (estimates have growth have recently been revised downwards) but it is now a year old. There’s the VAT increase (which rises to 20% in January), cuts to government spending and low wage growth still causing some alarm (fuelling fears of a ‘double dip’ recession). But where has current growth come from?read more...»
It looks as if this really is the end of the line for the historic film studio behind the James Bond franchise. Metro-Goldwyn-Mayer (MGM) have been looking for a buyer for the last few months, but their £2.5bn of debts have inevitably put off most potential suitors, leading to the present situation.read more...»
As A2 students start to broaden their thinking about the influences on a business’s decisions, they have to learn about local and national government revenue raising and spending. I often find that they don’t know the different roles of local and national government, but an interactive device which the Local Government Authority is about the roll-out to all councils websites might help with that. The idea is to ask the public to play the role of council leaders in deciding where to make cuts in spending, changes in employees pay and in the fees charged for various services, in order to achieve the required cuts and keep any rise in council tax to less than 5%. It has been trialled by Redbridge local council in London, and you can see it in operation on their website.
We did! Mintel have reported that sales of ‘pastry- based savouries’ are rising by 5% a year, with the beef pie outselling all the rest.
They think this may be down to the rise of the gastropub, featuring pies on the menu and repositioning them as a viable meal rather than a snack. The manufacturers suggest that this is due to an increased demand for regional foods, with consumers “returning to traditional British foods such as pork pies and looking for authentic regional products with a long heritage.”
On the other hand, this is quite strongly at odds with a move towards healthier food, and might be more a case of people turning to traditional comfort foods during the stresses of the recession, turning the ;pastry-based savoury snack’ into the ideal ‘credit crunch’!. As this report suggests, pie manufacturers might need to come up with a strategy based on the ‘healthy version’ if they are going to maintain this growth in the market.
An interesting statistic here which savvy students will add to their notes - particularly those who want to demonstrate real-life evidence to their examiner.
According to statistics from the Bank of England, the amount of bank loans outstanding to UK businesses is now £471 billion, down from a peak of £503 billion in September 2008 (the month in which Lehman Brothers went bankrupt). Thats a pretty significant change in absolute terms, although the percentage change is less pronounced.
Nevertheless, that’s a big chunk of bank finance which is no longer on the combined balance sheets of UK firms. Students ought to be able to identify several reasons for the shift, including:
- Reluctance of banks to lend to firms during the recession / credit crunch
- A strategy of cash conservation by many firms, who cut back on dividends, capital spending and operating costs in order to reduce their debt and gearing
Do you like freebies or do you value ‘value’? A couple of years ago Travelodge stopped putting ‘free’ shampoo in their rooms. The logic is that customers would prefer a lower room rate than freebies.
What do you think? My wife loves those little bottles and sachets, as part of the excitement of staying in a hotel. However, after a few conversations I’m revising my theory. Freebies are an important part of staying in a ‘posh’ hotel, but perhaps Travelodge customers do value ‘value’. Especially since they may be paying their own room rate, rather than claiming it on expenses from their employer.
Now a new hotel chain, Tune, have opened up a super budget hotel that takes the concept even further….....read more...»
Over one third (38%) of small businesses in the UK have had cashflow problems during the past two years of economic downturn, according to new research from IGF’s ‘Small Business Survey 2010’.read more...»
There’s been an interesting news piece recently that shows how ratio analysis is relevant to Britain’s biggest nightclub operator, Luminar.read more...»
Why are we drowning in debt? Well, governments have to borrow because they are spending more money than they raise in taxes. Households borrowed to buy houses and splurge on consumer credit. But what about firms? Why did they take on such huge debts? The Economist has a special feature on debt, here’s a summary:read more...»
Cartching up on some extra research or AQA BUSS4, I really like this article in the Independent from a few weeks ago which summarises quite neatly the key strategies (mainly financial though) which UK firms undertook during the recession. Well worth students reading this one and adding a note or more to their revision sheets:
Key points (all of which we made in the BUSS4 workshops) include:
Strengthened balance sheets (more equity & cash; less debt)
Focus on reducing inefficiencies (i.e. minimising unit costs)
Exploit faster-growing economies in the emerging markets (particularly China & Asia)
Maximised cash flow by dramatically cutting back on capital spending
Action to reduce labour costs - but not just redundancies
After a period of dividend freezes or postponements, larger firms are now rewarding shareholders
Some good “macro” or big picture content there - the challenge for students is to identify and use more detailed, specific examples of these actions in their essays
A recession is typically associated with a reduction in business investment (capital expenditure). As students prepare their final research evidence, what does the data show in terms of the total capital spending by UK firms during the recent recession?read more...»
This BBC article is really useful for students researching how businesses responded to the recent recession - and it also features an entrepreneur who will be joining us for the Business Teacher Conference on 18 June 2010!read more...»
This short one-minute video report explains very clearly the problems a small or medium sized business faces when customers delay payments. It coincides with a report from BACS Payment Systems which says that typically businesses are receiving payment 41 days late - with many payments running over 90 days late. This means that businesses are effectively bank-rolling their customers, and are particularly worried as they find that increasingly the delay is caused not so much by a desire to pay later, but because of an inabilty to pay at all. One issue is the cost of administrative time spent chasing those customers, and another is the need to add an extra 20 and 30 days-worth of cash to the cash flow. All making it increasingly hard to businesses which have survived the recession to survive the recovery as well.
A fascinating research report came out this morning which is really useful for students researching the UK recession and for teachers who want to top up their understanding of what really goes on inside small and medium-sized businesses in the UK…read more...»