Flight to value has its impact on the Charity Shops
There is good news and bad news for the charity retailers here. First the good news. Oxfam reports that its like-for-like sales are up by 5% compared with 2008. This includes a 7% increase in sales of books, and £2.4million of sales due to its online sales drive - a 70% increase in the year. This is very much in line with teh ‘flight to value’ during the recession, experienced by many other retailers of low-cost goods such as New Look, Primark and Asda which the Guardian reported last week is leaving retailers like M&S and Next stuck in the middle of the market.
On the other hand, Oxfam are also feeling the pinch over the donations that they receive in their shops. The same consumer caution that has caused their sales to rise has also led to fewer donations, which have fallen by 15%. Families are, they think, buying less and replacing fewer clothes and household goods, so they have less to give away. Mr McCullough, the charity’s director of trading, suggests that this could be taken as an indicator of whether the economy is really recovering yet. “Discretionary spending remains low, big sales are starting earlier and discounting harder, and we’re having to work harder than ever to maintain the high quality of donations.” Donations to Oxfam’s shops have “long been a barometer of retail trends in the UK, rising and falling in direct parallel with the strength of the high street - the current mood of optimism may be misplaced”.
High street trends - pop-up shops and Poundland niche
Two stories featured last Saturday showed trends in High Street shopping this year. On Sky TV news there was this report into new ‘pop-up’ shops – temporary stores which can be quickly installed in some of the many empty retail units available at the moment (15% of all high street retail units are unoccupied, compared with 7% this time last year). Originally conceived for niche brands such as the temporary Marmite shop on Regent Street, in which Marmite fans can buy 100 variations on the Marmite theme – they have been adopted by chains such as HMV who want to take advantage of a gap in the Christmas market left by disappearance of retailers like Zavvi and Woolworths, but don’t want to invest in a permanent shop.
A tale of two bakers
Tom White’s excellent piece on the rapid growth and success of Greggs could be used to compare and contrast with a piece of bad news for those of us here in Yorkshire used to getting our lunchtime nibbles from Ainsley’s…
read more...»Coffee – and sausage rolls – still a huge hit on the High Street
A nice case study that we’re all familiar with, just by checking out our local high street. One isn’t a surprise in the current climate: the booming business of Greggs the baker. But I am surprised by the other trend. I was convinced that the froth on the coffee bubble would be blown away by the recession, but so far I’m wrong. Coffee shops continue to spring up across the land.
read more...»Managing Cash Flow - Beware the Economic Recovery
An excellent recent article in the ACCA magazine examines an interesting phenomenon - more businesses collapse at the beginning of a recovery than during the depths of a recession. Its all to do with working capital…
read more...»ASDA overtakes M+S to become the biggest fashion retailer in the UK
What do you think is behind it? Asda’s George brand has grabbed a 10.1% share of the clothing market, with Primark having a 9.9% and M+S pushed into third with 9.8%.
read more...»Top brand values fall in the recession
This brief video report from the BBC looks at the newly published list of the values of the Top 100 brands globally. A look down the list, which shows not only where they are now and where they were last year, but also how much the value of the brand is estimated to have changed in that time, gives some interesting reading, and it could be worth spending some time in class considering the reasons for these changes. For example, notable gains include:
- Amazon +22%
- Google +25%
- Food manufacturers eg Heinz, Kraft, Nestle all approximately +10%
- Value + quality clothing ranges Zara +14%, H&M +11%
The dramatic slump in advertising revenue continues
Here’s the reason why executives at ITV are so worried about the current downturn and why newspaper and magazine journalists are collectively worried for the survival of their titles…
read more...»Kick-start for retail business
The British Retail Consortium estimate that England’s qualification for the World Cup finals in South Africa next year could be worth £1.25 to the UK economy next year. Pubs could take an extra £30-40mn, and electrical manufacturers will get boom sales in flat-screen TV’s to those watching at home and supermarkets will sell huge quantities of food and drink to keep the blood sugar levels up and combat the nerves. Spending on world cup advertising in 2006 generated £300mn, sports kit manufacturers Umbro will be rushing to make more England shirts, and flights and package tours to South Africa are selling out fast. Could this be the news we need to combat the recession and get people spending again? The Times leader writer yesterday thought it might be; in spite of the trillions that have been spent in the last year, this could finally be the news that we need.
Not all businesses will be so happy though. In 2006 estate agents found a huge drop of interest in house buying during the World Cup, and some cinemas had to close for the month with too few visitors. Not to mention the potential effect on A level students: the tournament kicks off on 11th June, with group matches and the knock-out round of 16 lasting through the rest of that month – just when the exams will be scheduled. Best to get the revision done early……..
How Japanese Business Custom is Changing in the Global Recession
A fascinating short video from the BBC takes us behind the scenes of a Japanese electronic components business that is having to handle demand that is around 60% lower than last year. Japanese business culture is fundamentally different from the UK & USA, and redundancies are almost unheard of…until now
Video case study: battling for survival in the restaurant trade
The consumer downturn has hit the UK restaurant trade particularly badly and record numbers of establishments are failing according to data for the first half of 2009. In the battle to survive, restaurant owners are taking risks by diversifying into the cafe trade and also looking to boost demand through aggresive sales promotion. This BBC video highlights the attempts of one restaurant entrepreneur to stay in business.
Download student worksheet (including video link)
A dramatic fall in business investment
A significant piece of economic data yesterday that business students might consider as they develop their understanding of the business response to an economic slowdown…
read more...»Plastic car is a blast from the past
One of my favourite stories from the Business News this month has been the possible relaunch of the original plastic car – the Trabant.
read more...»Own label brands profit from the recession
As the price of the average grocery shop rises, supermarket own-brands are becoming more popular with shoppers. A neat little video clip from the BBC explains further.
Banks lend more and charge more at the same time
Commercial loans and overdrafts and other forms of credit for businesses are hugely important to sustain businesses fighting a recession or those in better shape and looking to expand. It is a truism that the UK economy will not engineer a durable recovery unless the international financial and economic backdrop improves. Increasing the availability of bank lending especially to small and medium-sized enterprises is another essential building block to an upturn in output and jobs.
In this sense the news that Barclays has lent £17 billion to UK households and business in the first half of 2009 - already outstripping the £11 billion target it set for the whole of 2009 - is welcome. But that figure hides the actual cost of servicing loans. Even if a business can maintain an overdraft facility or gain access to fresh credit, it is likely to be paying more for the privilege. The cost of debt can be as important as the supply. Here is a good video on Rhino Rugby a manufacturer of equipment for the rugby industry.
Given that thousands upon thousands of smaller businesses use credit cards as a way of tiding them over from month to month (something the business studies textbooks and exam boards seem strangely reluctant to recognise despite overwhelming evidence), it will come as little comfort to entrepreneurs to be paying upwards of 40 times base rate (policy rate) for their loans.
How the recession is changing Britain
The Telegraph has an engaging piece here on ten ways in which the recession is changing Britain - from the explosion in the use of discount vouchers (real and virtual) to stay-cations, rising demand for sewing machines, takeaway pizza, discount food retailers and buses, consumers are showing resilience and ingenuity in responding to the challenges of the downturn. Smart businesses have taken advantage of the opportunities.
Pay-as-you-go holiday spending money
As sterling is so much weaker than it was a year ago, anyone travelling abroad for their summer holidays is going to find that their spending money buys far less. One result of this is that fewer of us are travelling abroad – see Innes Robinson’s piece ‘Recession hits Tenerife beaches’ on the GCSE blog, with its link to a video report on the BBC website showing glorious empty beaches, and the business closures, cancelled flights and growing unemployment in Tenerife as a result. Another result is that holiday makers will feel that their spending budgets are under pressure, and finding the best exchange rate could make a big difference. The BBC found that the cost of buying 500 euros varied hugely, from £423 to £463, which really makes shopping around worthwhile.
Fantasy Football hit by the weakness of sterling
Imagine, for a moment, that you are a top European footballer, perhaps from Italy, Spain or Portugal – something like Cristiano Ronaldo but better looking and more modest. Now imagine that two years ago you signed for a top Premiership club, perhaps Chelsea or Manchester United, for a transfer fee of around £25million plus a weekly salary of £100,000 – a reasonable and modest sum, given the quality of your football. When you started to play in the UK the top rate of tax was 40%, so after the first week when you benefitted from the lower tax rates on the first £40,000 or so of your annual pay, you have paid £40,000 income tax per week. But next April the top rate is set to rise to 50%, so your net (or take-home) pay will fall by a further £10,000 per week. Will you have to start watching your spending a bit more carefully?
Business angels take flight - just when small businesses need them
An interesting article from Andrew Stone this morning in the Sunday Times highlights the growing funding problems faced by small business who are looking for external investment by business angels…
read more...»Coffee Republic struggles with the daily grind
This will be a story that is worth following over the Summer. Leading coffee shop chain Coffee Republic is on the bring of going into administration according to the papers yesterday. A story of over-ambitious expansion, unprofitable growth through franchises, the impact of the credit crunch and a struggle to handle intense competition from from better-resourced rivals such as Starbucks and Costa Coffee. So far as I’m aware, Coffee Republic has never made a profit - though it has long been feted as an entrepreneurial success story…
Spare capacity prompts a fall in business investment
The recession is creating a growing amount of spare productive capacity across many different markets and industries. From container ships to hotels and from steel plants to airlines, the fall in demand has lowered capacity utilisation and put a big squeeze on profits. That pressure on profit margins comes not just from weaker revenues. Keep in mind that many businesses have a large fixed cost component such as the overhead costs of operating a network. Thus when output is contracting, the average fixed costs of production increase.
Declining demand and rising productive slack inevitably cause a fall in planned investment spending - economists term this a negative accelerator effect. BBC news reports that British Airways is cutting capital spending in response to the slump in demand and mounting losses. “The airline said it had cut spending by 20% to £580m ($952m) from £725m, and had lengthened its schedule of orders for 12 Airbus A380 aircraft.”
Further evidence for the reverse accelerator affect comes from Japan where Japanese firms cut their capital spending by a record level in the first quarter of 2009. In contrast Stagecoach is increasing investment in a fleet of greener buses.
Franchisees - An Example of When Things Go Wrong
Franchises are now a common feature of the business curriculum, and the textbooks generally paint a very positive picture of how they work. But things can, and do, go wrong. Here’s a great example….
read more...»East Coast Rail Line is Nationalised
The government is taking the East Coast rail line that runs from London to Edinburgh and which has been operated by National Express into public ownership. National Express has struggled with falling revenues and higher costs that have contributed to rising losses on the line. In a press release, National Express said that higher hedged fuel costs added £11 million of cost in the first half of 2009, while increased pension costs cost the business a further £3 million.
read more...»Nationalisation Again - National Express Taken into Public Ownership
First it was the banks. Now it is strategic transport businesses. The government has this morning nationalised the East Coast raiway line, previously operated by National Express.
read more...»Small businesses waiting for the upturn
The ten small businesses which are being followed by the BBC month-by-month throughout 2009 are remaining defiantly optimistic, with most of them reporting confidence ‘marks out of ten’ at the same level as May, and three of them more optimistic this month. Many seem to benefit from being in a niche market with very specialised products meaning they can really focus on their customers. They talk of expanding sales and taking on more staff, and some increased interest in UK products and producers. The hotel on the Isle of Wight is benefitting from sterling’s weakness this year causing an increase in holidays in the UK.
Several have changed their cost structures and looked for ways to strengthen their cash flow, for example by reducing reliance on credit for payments, and are hanging on and managing to break even while they hope for increased business in the near future, and there are concerns about how they will cope when interest rates rise again. There is still difficulty for those businesses which are related to the housing market, as solicitors or suppliers of joinery, and the most consistent worries remain those related to finance – lack of credit from the banks, lack of mortgages available to potential buyers, and poor credit ratings given to any relatively new small business regardless of their history.
Recession Bites - new food shopping habits
Tonight’s edition of the Money Programme looks worth watching, or recording – on at 22.00 on BBC2 (unless Wimbledon overruns by two and a half hours again, presumably!).
‘Recession bites into our eating habits’ looks at the changes in supermarket and food spending over the last year, as food prices have risen by 8% and consumers seems to be cutting back on luxuries and shifting to inferior goods – a good illustration of income elasticity of demand, and the effects of falling consumer confidence.
read more...»Trouble keeping track of changes in the car industry
This business remains one of the biggest in the world and you could (if you really wanted) do a whole Business course just looking at the automotive industry. The problem for me is keeping up with the current rate of change – I still can’t quite believe that General Motors (GM) has gone bankrupt.
read more...»Flexible unemployment
BT is following the lead of several other employers in an attempt to find ways to keep staff on the books even though they are not needed during the downturn. Their creative solution is to ‘lend’ their staff to competitors rather than make them redundant. This is part of a much wider cost cutting scheme, and involves offering ‘placements’ outside the company, initially on a voluntary basis, but BT have not ruled out making them compulsory if too few people volunteer. While the new company would pay their salary, staff remain members of the BT pension scheme. The scheme seems to mirror the way that a Premiership football club will lend players to other clubs for all or part of the season as part if the player’s ‘career development’ – the new club pays the wage, but there is an understanding that the player is expected to return to the ‘parent’ club at the end of the period.
read more...»Children’s parties defy the downturn
I don’t know. In my day you were happy with a bit of fizzy pop, some charging about, a tantrum and being sent home with a piece of cake wrapped up in a tissue. As with weddings, part of modern life is the raised expectations – and spending on - social get-togethers. A BBC article explains how the children’s party business shows little sign of the impact of the recession.
read more...»Milk co-operative turns sour
A rare example of a form of business organisation that used to feature regularly in business textbooks has entered insolvency…
read more...»
