As you can see from above I wasn't missed at this years office party. Anyway onwards and upwards with 2009 and a Happy New Year to all - and aplogies to the Ladies for the sexist start to the year.
Forget Everything You Know
The demise of MFI, Woolworths, Zavvi and possibly another ten well-known 'household' names has shown that we can take nothing for granted anymore. Borrowing has reached record levels for both the consumer, businesses and the Government and the repercussions of being a nation that is loathe to save will come home to roost in the next twelve months.
Privately many large companies are suggesting that 2009 will see a 'bouncing along the bottom' for the economy, only those companies who do not have borrowings that cannot be serviced will survive. It has been a strange time seeing the 'credit crunch' become a recession, not just in the U.K but the U.S.A, Japan and now China is showing signs of slowing down and going into a manufacturing decline, whilst those countries within the Eurozone seem to have continued, for the most part, unscathed.
Where will this leave the consumer in 2009? In the past few weeks the 'Sale' signs have appeared in the windows of almost every type of shop encouraging people to part with their cash or rack up more on credit cards. I've been patiently waiting for a wide angle lens to come down in price and today that patience was rewarded by a local camera shop that was selling the lens for £110 cheaper than anybody else in the country, either over the counter or online. Knowing a little of the photographic industry I knew that the chances of the price coming down because of manufacturers discounts to the shop was nil, I just had to wait until the shop, like all other businesses it seems, would need the cash flow to pay its rent for the December - March quarter.
There's a much wider issue at stake here though and it takes on an almost philosophical dimension - how much is anything worth? When the local newspaper is advertising new Jaguar cars at seven thousand pounds below list price and there is a radio advert from a Vauxhall dealer who is slashing ten thousand pounds off a new Zafira it's time to forget the old ways. Supply is now outstripping demand, everything is being discounted at levels never previously experienced but where does that leave those items that have become almost socially accepted as being out of reach? If you fancy a holiday abroad in 2009 avoid Europe, take a cruise, fly to Mexico, go to Greenland anywhere but the Euro zone where the politically over valued Euro is reducing the value of sterling to only just above the value of the chocolate coins we used to have in our stockings on Christmas Day. Those 'lifestyle' items that used to be the preserve of the rich and idle are now within the grasp of most people who have a regular income, so does that mean those of us who weren't rich or idle or both will now see our earning potential decrease at a time when our spending potential has never been higher?
I reckon this is the third recession the country has experienced since I've been in full time employment and it's the first time I've seen so many businesses affected by it. Capitalism as we know it has always been considered to have a higher set of morals than Socialism or Communism but curiously capitalism has become responsible for over production on vast scale. Goods of all sorts are stock piled across Europe at obscene levels, we have sleep walked into a situation where over production by global companies has become the norm, where the bigger the company the higher the gearing and ultimately the higher they climb the faster and harder they fall.
I posted before Christmas on the 5Live Board that the most famous High Street name in the U.K was having problems with one of its two major foodstuff suppliers, the supplier in question have cancelled dividends to its shareholders and are currently undergoing a restructuring that is expected to take two years to complete. In Sainsbury's the other day there was a sign in the CD section apologising to customers for the lack of choice caused 'by problems in sourcing stock from our usual supplier', Zavvi is going down because of its dependency on Woolworths retail division, Jessops, PC World and at least two big clothing retailers could well go into administration before the end of January. This might not be a bad thing, obviously for the employees of all the above retailers it won't be a good thing, but we could actually return to an age where quality of product, quality of service and the importance of customer relations returned to being the key to success in the businessworld. It could see the demise of the huge aircraft hanger size shopping experiences that now blight the country and a return to the High Street for shoppers - or we could look at Southampton, Portsmouth, Reading and Basingstoke - to name three I'm familiar with - and see how both large and small can work together.
For years I have told clients that running an overdraft close to its limit, to borrowing in the hope of future growth rather than against actual growth and expansion financed by third parties was a no-no. Accountants are by nature cautious, even when it's not our money, and it's not a question of being a smart arse, you cannot live today in the hope that tomorrow will never come and those debts will somehow vanish. Like the DFS sale and EastEnders, for some people debts aren't just for Christmas they are for life.
Incidentally talking of DFS - if you buy one of their advertised bargains and the company goes bust in the next twelve months whilst you are enjoying their offer of nought percent interest - who do you pay?
The demise of MFI, Woolworths, Zavvi and possibly another ten well-known 'household' names has shown that we can take nothing for granted anymore. Borrowing has reached record levels for both the consumer, businesses and the Government and the repercussions of being a nation that is loathe to save will come home to roost in the next twelve months.
Privately many large companies are suggesting that 2009 will see a 'bouncing along the bottom' for the economy, only those companies who do not have borrowings that cannot be serviced will survive. It has been a strange time seeing the 'credit crunch' become a recession, not just in the U.K but the U.S.A, Japan and now China is showing signs of slowing down and going into a manufacturing decline, whilst those countries within the Eurozone seem to have continued, for the most part, unscathed.
Where will this leave the consumer in 2009? In the past few weeks the 'Sale' signs have appeared in the windows of almost every type of shop encouraging people to part with their cash or rack up more on credit cards. I've been patiently waiting for a wide angle lens to come down in price and today that patience was rewarded by a local camera shop that was selling the lens for £110 cheaper than anybody else in the country, either over the counter or online. Knowing a little of the photographic industry I knew that the chances of the price coming down because of manufacturers discounts to the shop was nil, I just had to wait until the shop, like all other businesses it seems, would need the cash flow to pay its rent for the December - March quarter.
There's a much wider issue at stake here though and it takes on an almost philosophical dimension - how much is anything worth? When the local newspaper is advertising new Jaguar cars at seven thousand pounds below list price and there is a radio advert from a Vauxhall dealer who is slashing ten thousand pounds off a new Zafira it's time to forget the old ways. Supply is now outstripping demand, everything is being discounted at levels never previously experienced but where does that leave those items that have become almost socially accepted as being out of reach? If you fancy a holiday abroad in 2009 avoid Europe, take a cruise, fly to Mexico, go to Greenland anywhere but the Euro zone where the politically over valued Euro is reducing the value of sterling to only just above the value of the chocolate coins we used to have in our stockings on Christmas Day. Those 'lifestyle' items that used to be the preserve of the rich and idle are now within the grasp of most people who have a regular income, so does that mean those of us who weren't rich or idle or both will now see our earning potential decrease at a time when our spending potential has never been higher?
I reckon this is the third recession the country has experienced since I've been in full time employment and it's the first time I've seen so many businesses affected by it. Capitalism as we know it has always been considered to have a higher set of morals than Socialism or Communism but curiously capitalism has become responsible for over production on vast scale. Goods of all sorts are stock piled across Europe at obscene levels, we have sleep walked into a situation where over production by global companies has become the norm, where the bigger the company the higher the gearing and ultimately the higher they climb the faster and harder they fall.
I posted before Christmas on the 5Live Board that the most famous High Street name in the U.K was having problems with one of its two major foodstuff suppliers, the supplier in question have cancelled dividends to its shareholders and are currently undergoing a restructuring that is expected to take two years to complete. In Sainsbury's the other day there was a sign in the CD section apologising to customers for the lack of choice caused 'by problems in sourcing stock from our usual supplier', Zavvi is going down because of its dependency on Woolworths retail division, Jessops, PC World and at least two big clothing retailers could well go into administration before the end of January. This might not be a bad thing, obviously for the employees of all the above retailers it won't be a good thing, but we could actually return to an age where quality of product, quality of service and the importance of customer relations returned to being the key to success in the businessworld. It could see the demise of the huge aircraft hanger size shopping experiences that now blight the country and a return to the High Street for shoppers - or we could look at Southampton, Portsmouth, Reading and Basingstoke - to name three I'm familiar with - and see how both large and small can work together.
For years I have told clients that running an overdraft close to its limit, to borrowing in the hope of future growth rather than against actual growth and expansion financed by third parties was a no-no. Accountants are by nature cautious, even when it's not our money, and it's not a question of being a smart arse, you cannot live today in the hope that tomorrow will never come and those debts will somehow vanish. Like the DFS sale and EastEnders, for some people debts aren't just for Christmas they are for life.
Incidentally talking of DFS - if you buy one of their advertised bargains and the company goes bust in the next twelve months whilst you are enjoying their offer of nought percent interest - who do you pay?
2 comments:
As Mark Lawrenson might say "A very cheerful post....not!" I was on the dole during the winter of discontent so I think it's propbaly my third recession as well. This one seems to have come with greater speed and severity than previous ones and I can't remeber banks being affected before.
We've got about 8 months of loan to pay on my wifes car and a small amount of mortgage left but, apart from that, we haven't got any debts. I last used my credit card over three years ago. We've never been keen on racking up debt or borrowing to our limit so things aren't too bad for us. The company I work for has, however, postponed the annual pay rise from last month to "at least July", even though they can afford to buy shares in Aldermaston. Oh well, c'est la vie!
I hope your job is safe, Paul. And I hope 2009 is a good year in lots of ways for you, Janis and Nathalie.
Hi Shy,
I hope 2009 is good for you and your family.
We have only fifteen months left on the mortgage and I'm counting down every day! As far as my job goes - who knows, but having just been bought a new company car I think my boss probably feels good about the immediate future.
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