Whilst the general financial atmosphere is improving and optimism growing, it is too soon to announce that we are in the process of recovery, according to experts at Ernst and Young Item Club.

The influential professional services firm expects some growth towards the end of 2009, but this growth should begin to struggle, with 1% expected growth for 2010.

They also predicted that customers repaying debt will grow slower than first anticipated and impending tax rises will follow the election.

BT Business research predicted a more optimistic outlook, declaring that small businesses are positive about the forthcoming year.

In September, BT Business conducted a survey of over 7000 small businesses and found that 75% believed their business would see an upturn in 2010, with 61% confident about their business’ prospects.

Professor Peter Spencer, Chief Economist from the Item Club, issued a wake-up-call to all those getting carried away with the optimism of recovery.

He warned, “there could still be substantial pain to come for corporates and consumers.”

“For a sustainable recovery the UK economy needs world trade to pick up and there is still not much sign of that happening.”

One of the factors holding back growth is that the VAT rate will return to 17.5% from its current level of 15% on 1 January, a change which may see consumers making purchases before the New Year.

Several other factors which will hold back growth lie on the horizon. An increase in national insurance contributions, the new 50p tax rate, the termination of the car scrappage scheme, tighter government spending and the return of stamp duty on housing are all due to hit the country.

Judging whether the recovery is happening, on the way or unlikely is difficult to forcast.

Professor Spencer went on to tell the BBC that the recent economic data has been “very mixed,” adding, “the stock market is absolutely rampant, industrial surveys all back in positive territory, but it’s yet to show through in hard data for output and things like that.”

“And when it comes to lagging indicators like unemployment, I’m afraid it’s going to be ‘feel bad’ for quite some time to come.”

On Friday, the official statistics for the Gross Domestic Product (GDP) are released, with many expecting no economic growth at all.

GDP is a measurement of the services and goods produced in a country, and since the first quarter of 2008, the UK GDP has been in negative figures.

The Bank of England has focused on quantitative easing, an act of pushing money into the economy. Professor Spencer feels that this has been of little success, with the little improvement on bank lending, going on to complain that “instead, the banks appear to have used much of the money to rebuild reserves and improve liquidity.”

Time For Everyone To Play Fair

The Competition Commission has made formal recommendations for the government to establish an ombudsman to rule dispute between supermarkets and suppliers after supermarkets failed to come to a voluntary arrangement, as well as a strengthened code of conduct.

The new measures follow the Commission’s two year investigation into the supermarket industry, which ended in April last year.

After extensive consultation since, Marks and Spencer, Waitrose and Aldi backed the creation of an ombudsman, but other retailers opposed it saying it created ‘red tape’.

Competition Commission’s Peter Freeman said: “We made every effort to persuade retailers of our case as it would be the quickest way to establish the ombudsman.
 
“We are now left with no alternative but to set out the new code of practise and recommend the Department for Business, Innovation and Skills, set up the ombudsman,” he added.

Everyone Must Behave Fairly

It’s thought the ombudsman will cost £5 million to run each year, and will prevent supermarkets from making adjustments to existing terms and conditions with suppliers, and require them to enter a binding settlement to resolve any dispute with a supplier.

British Retail Consortium (BRC) said that the Business Secretary should refuse the proposal as customers will be the ones to lose out.

The BRC’s Andrew Opie said: “This should be about customers. The last thing needed at any time, let alone in a recession, is a multi-million-pound bureaucracy, unnecessarily piling on costs and pushing up shop prices.”

The president of the National Farmers Union, Peter Kendall, said that farmers and other small businesses welcomed the move.

He said: “There are a lot of underhand practices going on and we want someone to make them behave fairly.”

Swift Action Must Be Taken

There have been many suggestions over the years that supermarkets use their power to take advantage of small suppliers, and the Commission found that some are taking advantage, such as when a product is stolen, the cost is often borne by the supplier.

Promoter of fair trade, Traidcraft, said the new code would not protect small suppliers unless there was an ombudsman to enforce it:  “Nothing in the history of the supermarkets suggests they will be any more willing to apply this code than its predecessor. In fact, in the recession the situation has worsened, with suppliers coming under increased pressure,” said Fiona Gooch, from Traidcraft.

“It is crucial the government acts swiftly to establish an independent ombudsman to stem unfair practices and help the grocery sector return to being a fair market,” she added.

What Do You Think?

Do you support the introduction of an ombudsman or not? We would love to know your thoughts and opinions. Leave your comments here.

High Streets At Risk?

Out-of-town shopping areas could be putting traditional high streets at risk unless proposed changes to plan rules are scrapped according to MPs.

Ministers are looking to replace the ‘need test’, which aims to prevent excessive retail park or supermarket development. But the communities select committee wants it retained in order to stop town centres being damaged.

However, John Healey is a communities Minister, and says that changes will mean “greater safeguards for the high street, not less.”

The Association of Convenience Stores has also welcomed the MPs’ report.

The needs test was created after many complaints that smaller shops were being damaged by chains developing larger stores.

Out With The Old, In With The New

The test forces planning committees to address whether the local community needs the proposed superstore or not.

But, in 2005, a review of planning regulations found that the test was having negative effects such a the restriction of competition and consumer choice, and therefore the government announced plans to scrap the plan two years ago.

Now, it wants to introduce a broader ‘impact assessment’ in its place.

The cross-party Commons report says it is not convinced that the test will have adverse effects: “On the contrary, we have heard from representatives of developers, of local planning groups, that it is serving a useful – some say essential – function.”

Mixed Views

The MPs also believe that the timing of the change could make its effect even worse. It concludes that: “In the current economic climate, the removal of the need test would present unnecessary risks to town centres.”

On the other hand, Mr Healey believes the needs test is “dysfunctional” and that the new system would allow us to “protect the vibrancy of town centres by requiring developers to carry out assessments into key factors including retail diversity, consumer spending, loss of trade and job creation.”

“The government is helping small shops and other high street retailers manage their business rates with £2 billion rate relief support next year and from next month they will be able to spend this year’s inflation increase over the next two years.

“Special waivers for local planning applications are also helping small businesses during this difficult time,” he added.

What Do You Think?

A good idea or a bad one? I now the time for change or, given the current economic climate, could this make things worse? We would love to know your thoughts and opinions. Leave your comments here.

Double Shops Empty By The End Of The Year

By the end of 2009 it is expected that 15% of high street shops will be empty – more than double the 7% of stores that were vacant at the beginning of the year.

The British Retail Consortium (BRC) also added that some areas have already seen up to 40% of shop space empty due to the recent lack in consumer confidence.

The likes of Woolworths has long since disappeared from the High Street already, but overall the UK retail sales have not completely collapsed as some people had originally feared.

Harwich, Essex, Gateshead and Walkden in Greater Manchester are four areas that are among the worst hit.

Around 12% of town centre shops have already been badly hit and stand empty because of this said the BRC.

Visible Signs Of Downturn

They said: “It is clear that in many places, recession is accelerating a trend of decline that was already underway.

“The dangers associated with this deteriorating picture are clear.

“Vacant units are perhaps one of the most visible impacts of the economic downturn. Shoppers who are unable to ignore the increasingly visible vacant units in their local communities are likely to further reinforce falling consumer confidence.”

The report also added that sadly some High Streets had lost their customers to nearby towns and shopping centres. This could mean that they never go back to being important shopping destinations.

High Streets Need Nurturing

However, the report also stressed that the High Street had still got a bright future ahead of it, but that it would need “nurturing through this difficult period.”

The report also suggests that town centres that are failing should focus on their local characters and create an attractive and safe environment for people to shop in. It believes that developing unique identities would help pull their High Street through the recession.

On top of making towns more distinctive and welcoming, the BRC suggests that better transport links are put in place in a 20-point plan in order to help struggling areas.

It says car parks should be improved as well as facilities that encourage ‘greater footfall’ in town centres.

What Do You Think?

How can High Streets increase their custom once again? Are the signs of lack of custom noticeable, and does that lead to fewer people shopping there? We would love to know your thoughts and opinions. Leave your comments here.

April Showers, April Shine?

April has finally seen a rise in the amount of sales expected for the first time since the UK went into a recession, increasing by 0.9% according to the Office for National Statistics.

Analysts had only expected a 0.5% increase after interest rates were cut by the same amount in March, meaning that mortgage holders monthly bills were lowered.

The British Retail Consortium had already revealed that April sales had increased.

The ONS say that compared to last April, sales had increased this year by a total of 2.6%. But analysts still believe that we aren’t out of the woods yet, warning that sales could fall back again as 2009 continues because of the rising unemployment level.

Sceptical

Analysts are generally pleased with the increase in sales, though some are a little sceptical about the figures as it is the first time since the ONS changed its survey methodology after previous criticisms that figures didn’t tally with other retail spending studies.

The chief economist of Insinger de Beaufort, Stephen Lewis said: “The retail sales figures confirm the trend which came through from the British Retail Consortium report a few days ago.

“They [retail figures] are always a surprise, and even with the new method they seem to be throwing up figures which many people feel may be on the firm side of what they would expect.”

According to the ONS, footwear and clothing sales in particular were strong, and many department stores saw their highest year-on-year performance since February last year (2008).

The ONS did however say that overall, the picture remains “mixed” as some sales, for example, household goods, are still falling.

Will Unemployment Continue To Take Its Toll?

Textiles, clothing and footwear sales increased by 11.9% last month, and food stores also noticed an increase of 0.5% in sales, but household good sales did fall by 8%.

“The High Street has enjoyed a decent bounce in spending lately,” confirmed Vicky Redwood from Capital Economics.

“It’s therefore looking increasingly likely that there has been a more fundamental improvement in sales, perhaps related to the pick-up in disposable incomes caused by falling inflation and interest rates,” she added.

But, she concluded: “we remain doubtful that this is the start of a sharp or sustained consumer recovery.” Warning that the continued rise in unemployment is actually likely to drag future sales down.

What Do You Think?

Are things starting to look up for sales and the economy in general, or do we still have a long way to go? We would love to know your thoughts and opinions. Leave your comments here.

Woolworths is to be re-launched online after it was bought by Sir David and Sir Frederick Barclay.

The chain of stores went into administration in November, finally closing its 800 stores just a month ago after struggling with its £385million debts.

Ladybird, Woolworths’ children’s clothing line, is also set to be re-launched online.

However, it is expected that only a small percentage of the original 30,000 staff will get their jobs back.

The sum of money that the Barclay brothers are setting down for the brands has not been disclosed, but this will be one of many other brands the twin brothers own, including Great Universal and Shop direct, formerly known as Littlewoods.

This news comes even though just last week, Shop Direct announced it was to cut 1,150 jobs in North-West England.

What the company’s chief executive had to say…

Mark Newton Jones, chief executive said: “this is great news and we are confident that Woolworths, as an online brand, will once again prosper and quite rightly stay at the heart of British retailing. It would have been a tragedy should the name have disappeared. It’s an iconic name.

“Essentially we will sell children’s clothing through the Ladybird name and also other products. But what we’re looking to do is encourage customers to come to us and tell us what they would like to see from Woolworths and what they liked and disliked and we’ve set a website up already. You can come and register online with us this morning and tell us the sort of products you’d like to see.”

He also added that details of new product ranges would be announced in the next few months, but that they hoped to launch the new shopping website by the summer.

Will an Online Store Work?

According to retail consultant Teresa Wickham, online retail is a “very competitive marketplace.”

She said: “If Woolworths can pick up on what was good about it – such as Ladybird and Chad Valley – then they could capture a new market. They have also got to show good value.

“In many ways this is the ideal time for this move though, while the brand is still fresh in people’s minds.

“People are generally getting more used to buying online, and the online clothing sector is predicted to grow over the coming year.”

She also added that many of the customers that shopped in the High Street store may not be the same as those that use the online store, as many of its customer base were elderly, and therefore less likely to be internet-aware.

The High Street Buildings

Woolworths held prime position on many High Streets across the UK, and many of those buildings have been quickly snapped up to be re-opened by other businesses. Iceland, for example, are to buy 51 of the old Woolworths stores.

What Do You Think?

Do you think the new online Woolworths will be successful? Leave your comments here.

One of the country’s biggest DIY chains, Focus has complained that credit insurers have almost completely pulled the cover they offer to retailers.

Credit insurers are meant to cover suppliers against the risk of customers going bankrupt before paying for the goods the shop supplies. However, Focus has said that credit insurers are now covering less than 5% of its stock.

Bill Grimsey is the chief executive of Focus, and has written to the business secretary asking for an investigation to be conducted.

This loss of cover could mean suppliers ask retailers to pay bills more quickly, possibly even in advance of deliveries, which could put a strain on the retailer’s working capital.

According to Mr Grimsey, Focus has been planning for 2009 not to bring in much profit, and has therefore been negotiating with its suppliers and landlords to reduce its cost base.

He told BBC Radio Five Live: “We planned for all this [downturn], and keep the credit insurers aware of what we are doing, and why we are doing it.
“We just opened two new stores, so that is hardly the sign of a business that is about to go into administration.”

He also said he had invited credit insurers to Focus’s suppliers conference, and given them Focus’s monthly management accounts. On top of this, the group has said that their annual sales are about £450million and it employs 4,900 people.

“The only explanation you can get from them is that we are in a risky area called retailing, where consumer confidence is going, and that we are in the DIY market, which is affected by the housing market,” he added.

He also said the suppliers were currently being co-operative, but he was not going to agree to shorter payment times with any of his suppliers.

He said: “my job is to make sure this business survives 2009, and thrives as the market improves.”

It is well known that one of the problems recently closed High Street chain Woolworths, faced was: in its final few months, it was forced to pay cash when buying goods from suppliers. This was because trade credit insurers were no longer prepared to insure Woolworth’s suppliers.

As Woolworths paid upfront it ran out of money fast.

The Association of British Insurer’s (ABI)’s director for general insurance and health, Nick Starling, has said that credit insurance is not withdrawn from firms lightly.

He said: “When an insurance company decides to withdraw or reduce trade credit insurance cover, it is done only after extensive and detailed analysis.
“Insurers have built up extensive risk management data and by not renewing cover are trying to help business avoid risk – they are in a better position to know where risk is.
“We are in unprecedented times and everything trade credit insurers do is geared towards giving their customers, often SMEs, the best possible service.
“The withdrawal of cover from a company is a symptom of a struggling business, not a cause.”

Famous entertainment retailer HMV has said it is going to buy 14 Zavvi stores, funded by selling new shares.

HMV are also looking to take out a stake in the live music market in the form of helping to run 11 venues including Hammersmith Apollo, with its 5,100 capacity. The Apollo would become the HMV Apollo in a naming rights deal.

HMV is also seems to be one of the few stores not suffering too much so far in the economic downturn. In the five weeks leading up to January 3rd, their sales were up by 2.9%.

The Zavvi stores that HMV are planning to buy are all prime location, profit making stores in areas where HMV do not currently own a store.

Nine of the stores are in the UK and two in the Irish Republic. Administrators in charge of Zavvi say that the deal would save 269 jobs.

HMV expects the purchase to cost £2 million including the cost of re-fitting and re-branding the stores.

Zavvi went into administration shortly after its main suppliers, Woolworth’s unit Entertainment UK, went into administration in November. Since this, Zavvi have had problems sourcing stock and have been forced to enter new trading arrangements.

On Wednesday, Zavvi announced it was to close a further 18 stores, resulting in 353 job losses. But the remaining 74 Zavvi stores will remain open and the administrator is hoping to sell the business.

HMV will form a new business deal with MAMA as part of its live music deal. MAMA currently deals with ownership and operation of the venues, including The Forum in London’s Kentish Town, the Birmingham Institute and Moshula in Aberdeen.

Between July 2007 and 2008, the 11 venues attracted a couple of million visitors, and had combined revenue of £20.25 million, making a profit of £2.24 million.

HMV are also going to set up a division to sell tickets for events for the venues.

Simon Fox, chief executive, said the deal was about more than just rebranding some of the venues.
“Music is very much part of our DNA, and by extending the HMV brand into the growing live music and entertainment market, our customers will be able as never before to access and experience music in all of its forms via HMV.”

One of the incentives HMV are planning on using is that loyalty card holders will be able to earn tickets to gigs as rewards.

MAMA is hoping that HMV will “alter the face of the live venue business in the UK.”
They added that: “the engagement of artist and fan is the key driver of the music industry and that engagement is at tis most evident at live music events.”

It also aims that joining with HMV will link tickets, music and merchandise. It said “a direct artist-to-fan relationship is a way to help the music industry grow and prosper.”

Only a day after the final Woolworths stores closed down, Marks & Spencer have announced the closure of 25 of its Simply Food stores, and 2 regular M&S shops.

The closures will directly lead to 780 job losses, but the company also plans to cut 450 head office jobs on top of this.

M&S’ like-for-like sales fell 7.1% in the 13 weeks leading up to 27th December, and total UK sales fell by 3.4%, and it warned its profits may be lower this year due to reductions, especially in food.

Other High Street names feeling the heat are:
- Next, who suffered a 7% drop in sales in the six months leading up to Christmas.
- Debenhams, whose like-for-like sales fell 3.3% in the last twelve weeks.
- Blacks Leisure who recorded 3.9% decrease in like-for-like sales in thirteen weeks until January 8th.
Overall, M&S group sales fell by 1.2%, even though its international sales rose by 26.9%, and its online sales rose by 29%.

In closing stores and introducing a redundancy programme and cutting pensions, the company hopes to reduce annual running costs by over £175 million.

Its changes to pensions include a cap on the increase of money going into pension funds by just 1% per year, which will reduce the future build-up of pensions. Staff who started work before 1996, will also find their pensions reduced if they choose to retire early.

Sir Stuart Rose, M&S boss said: ‘We are aware that the proposed changes set out above will be difficult for those members of staff impacted, but given that we expect challenging economic conditions to continue for at least the next 12 months we believe we are taking the right action to maintain the strength of our business.’

Keith Bowman of stockbrokers Hargreaves Lansdown, warned that the difficulties M&S faced couldn’t be ignored: ‘Consumers globally are in retreat, the dividend payment is still under review and the group’s expansion into small food outlets is now in tatters.’

M&S say that the 23rd December was its record day for food sales, with sales of over £50 million. Also, it claimed that the clothing had done particularly well in sales of lingerie and children’s clothing.

Sir Stuart also says there are plenty of customers coming into the store, with 56 million walking through the doors in the 10 days leading up to Christmas.
He said that: ‘The volumes that we sold were greater than last year and the traffic we had in our stores was as much as last year. We’re just finding that customers individually didn’t have as much to spend.’

Though John Stevenson of the KBC said that the ‘cost initiatives are to be applauded,’ analysts are still predicting a fall in the company’s profits.
Mr Stevenson also predicts M&S profits to fall £595 million from last year’s £1 billion: ‘With the pressure on gross margin we’ve got, and given the sales outlook, we still expect profits to be falling next year.’

As the final 200 Woolworths UK stores closed their doors for good yesterday, it was an emotional farewell for many customers and over 27,000 employees.

Woolworths formally held 807 stores that have been closing in stages since the end of December. Tuesday was the final day for the remaining 200 stores to shut up shop forever.

After mounting debts of £385 million, Woolworths was put into administration in November. However, with such a large debt to be paid, the administration company Deloitte was unable to find a buyer.

Deloitte is currently continuing its negotiations to sell of individual sites to other High Street chains, and many of the prime location sites are expected to re-open.

Shopworkers’ Union, Usdaw, is said to be contacting companies looking into buying the sites and asking them to prioritise applications from the redundant Woolworths employees in order to maximise their chances of employment.

John Harnnett, General Secretary of Usdaw said: ‘The union will also be in contact with local colleges, which will be offering free Skills for Life Training.
‘We will be providing as much support as necessary and would recommend all Woolworths staff to use JobCentre Plus and Next Steps to find alternative employment.’

In its final days, the stores were not only selling off their stock, but also fixtures and fittings, such as staff lockers, at discounted prices. Customers have also reported such reductions as bottled water at 4p, and DVDs and CDs for pennies.

Professor Alan Wilson from Strathclyde Business School, believes that the company didn’t survive due to its lack of quality compared to other store, and couldn’t offer the discounted prices of other stores.

One shopper from Staffordshire said: ‘It is so sad to see the shop like this.
‘Woolworths used to be the heart of Lichfield. It used to be the heart of every high street.
‘We are all happy while we are getting the bargains but we won’t be so pleased when all the other shops are wiped out too.’

Deloitte wouldn’t confirm how much money had been raised by the clearance sales, though the Glasgow Argyll Street store was forced to shut at midday yesterday as the manager said there was nothing left to sell.

One customer reported that: ‘People in there are fighting to get at empty shelves, there is nothing left.
‘I’ve been shopping at Woolies all my life. I remember going to the pick and mix when I was a girl and lately I would buy clothes for my grandchildren.
‘There was always a bargain to be had at Woolies, I just don’t understand where it all went wrong.’

Woolworths is just the highest profiled of many High Street casualties that have been caught out by the recent economic problems. Its problems were heightened when it was forced to pay in cash for goods bought from suppliers due to trade credit insurers no longer covering its suppliers.