Throwaway Fashion

The Department for the Environment, Food and Rural Affairs (Defra) has launched a "Sustainable Clothing Action Plan" co-inciding with the London Fashion Week to highlight the increasing problem of "fast fashion". Apparently, UK consumers buy around two tonnes of clothes every year, and throw away a massive 1.2 million tonnes of them every year.

Rapidly changing fashion trends means that many consumers have to keep on buying new clothes to keep their wardrobe up-to-date and to compete with their friends and peers. This means that new clothes are worn only a few times and as trends change, are then consigned to the bin.

Of the two million tonnes of clothing bought every year, only 300,000 are recycled. If the majority of the clothes are worn only a couple of times, surely more of them can be recycled. Due to the current economic crisis, donations to charities has dropped. Consumers are cutting back on their spending. If more clothes that are in a good condition are donated to the charity shops, they can then sell them on to consumers looking for a bargain which results in a win-win situation. The charity shops get their revenue, consumers can bag a bargain and there are less clothes ending up in the landfill site.

One of the reasons why consumers can afford to keep on buying new clothes and then throw them away is partly due to ready availability of cheap fashionable clothes on the high street. However, many fail to see the real story behind the cheap price tag. An investigation by BBC's Panorama last year revealed how Primark's suppliers used factories with unfair standards and also child labour to provide the consumers on the high street with cheap fashionable clothing.

Jane Milne, who is the business environment director of the British Retail Consortium, said that retailers should be "applauded, not criticised, for providing customers with affordable clothing, particularly during these tough economic times". Sure, if the low prices are due to a better, more efficient production technique. But not if someone less unfortunate than us halfway across the world is subsidising the cost for us by being exploited and made to work in unfair conditions.

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High Street Blues

The trading that occurs in the run up to Christmas is very crucial to retailers even in the "normal" years. It allows them to make up for the losses they might have incurred over the year and helps them prepare financially for the coming year. 2008 has been, by any standards, anything but a normal year. Huge banks have become small banks, some have been swallowed up by bigger banks, some have merged with other banks while some have disappeared altogether.

Little surprise then that the past few weeks have been really tense for the retailers. The number of shoppers visiting the shops have decreased. As a result, retailers have been forced to cut their prices to attract shoppers. According to Experian, the number of shoppers during the weekend, the last weekend before Christmas, was down by 8.7% as compared to last year. However, the number of shoppers yesterday were up 13.6% as compared to the same Monday last year.

It's a bit unfair to compare the two corresponding Mondays because last year the Monday was Christmas Eve. The kind of shoppers who go shopping on Christmas Eve are generally those looking for food items or ingredients for their Christmas dinner, last minute shoppers or those looking for last minute bargains.

Even though the number of shoppers increased, it still remains to be seen how much revenue that translates into. The main reason why more consumers went out to shop perhaps has a lot to do with a last minute heavy discounts by retailers in desperate attempt to attract shoppers. According to the accountants Ernst & Young, the average discounts were 40%, up from 38% last year. It means that even though people had more shopping bags in their hands, the retailers wouldn't have made a lot of money from that.

Although the high street is seeing a decline in the number of shoppers, according to Hitwise, the number of people visiting the websites of high street retailers has increased. Between Dec 18 and Dec 21, traffic to online retailers(including internet-only and high street) increased by 2.2% on average as compared to last year. Websites of high street retailers saw their traffic increase by 2.7% on Saturday and 5.9% on Sunday as compared to last year.

When it comes to prices, mostly the online retailers clearly have an advantage over their high street rivals. But their biggest drawback is that the items have to ordered before a certain date to ensure that they are delivered in time for Christmas. On the other hand, the websites of high retailers allow the shoppers to book their products online and pick them up instore. It may not be cheaper than the internet-only retailers, but it certainly is more convenient. One of the put-offs of shopping on the high street before Christmas is clearly having to navigate through crowded streets and aisles holding your shopping bags. It is also very hard to compare prices across different retailers and browse the items leisurely.

The rise in the number of shoppers will definately be of some relief to retailers. But it will by no means make up for the dismal sales and revenues they have generated over the past few weeks. Woolworths and MFI have gone bankrupt and Whittard of Chelsea is said to be on the brink of administration. And it is clear that more will have the same fate in the new year, what remains to be seen is who they will be.

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Sales rise amidst the credit crunch

According to figures released by the Office of National Statistics (ONS), the volume of sales between September and November rose by 0.5% as compared to the three months before it. This may not sound good, but compared to all the doom and gloom and the difficulty of obtaining credit, it does sound good. Also, the value of weekly sales in November were 2.9% higher than in November last year.

However, the high street retailers beg to differ with the figures. The British Retail Consortium (BRC) said that the figures released by the ONS were optimistic and painted a "rosy picture" of the current difficulties. According to BRC's own findings, the sales value actually fell by 0.4%. Experian reported that the footfall (the amount of traffic generated by shoppers visiting the stores) in stores for the first three days of the week had decreased by 11.5% compared to last year.

It seems hard to believe that the increase in the volume in sales could have lead to a increase in the value of sales. After all, the increase in the volume of sales is largely due to a wave of heavy discounting by the high street retailers, especially after Woolworths slashed its prices to get rid of its stock. It is likely that the spectacular and well-publicised offers by retailers would have made some reluctant consumers go out and spend. It is also equally likely that many who generally would have waited for Boxing Day sales have instead done their shopping before Christmas since they feel that the discounts offer good value for money. After all, there is a limit to the amount of discounts that the retailers can offer before it starts eroding their profits. So many consumers may feel that the discounts are as good as they are going to get. If this is true, what would happen is that the average amount of sales during the Christmas period hasn't really increased, but the shopping has been concentrated to a few weeks before Christmas.

The reason for this difference in figures, according to Reuters, is that the figures of "the ONS figures capture internet shopping more fully". According to the ONS, the value of online sales was £220 million in November and it accounted for 3.8% of the total retail revenues. According to Experian, its company Hitwise which is an online competitive intelligence service, found that the websites of high street retailers had 22% more visits than its internet-only rivals. This could explain why the sales have increased even though the number of shoppers visiting the stores seem to have decreased.

Many shoppers percieve the prices of online retailers to be cheaper than their high street counterparts. And this has been shown to be true in most cases. After all, they do not have to worry about expensive overhead costs like rent and sales staff. However, many shops on the high street nowadays allow their customers to haggle and bag bargains, and this is not available to online shoppers.

It would be interesting to see the figures of the overall retail sales before and after Christmas since that would allow us to see the whole picture.
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Inflation? Worry about Deflation instead.

It was announced today that the Consumer Price Index (CPI) fell by 0.4% from 4.5% in October to 4.1% in November. The CPI is the official measure of inflation used by the Government. The biggest factor for this fall is being attributed to the fall in crude oil prices. The average price of petrol was 95.2p. On the other hand, prices of fresh fruit and vegetables and non-alcoholic beverages is said to have risen compared to last year.

Although the drop is good news, the rate of inflation is still twice the official target of 2%. So, Mervyn King, the governor of the Bank of England put pen to paper and wrote a letter to the Government explaining why the rate of inflation had not hit the target. The governor of the Bank of England is required to write a letter to the Government whenever the rate of inflation is either 1% above or below the target and explain the possible action the BoE might take to solve it. However, Mervyn King feels that the next time he has to write a letter to the Government, it may not be about the reasons for inflation, but deflation instead.

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What are Inflation and Deflation?

Inflation is regarded to be a bad thing since it means a rise in prices, which is a bad thing for shoppers. Then, deflation must be a good thing, right? In the short term, yes it is. In the long term though, its a dreadful thing. To understand why a drop in prices is such a bad thing, one has to understand the meaning of the terms "inflation" and "deflation" and its causes. Inflation is the general increase in prices or, it is the decrease in the purchasing power of money. There are two possible causes; either the cost of production has increased, like the cost of raw materials or labour, or demand is out stripping supply. Take for example a rise in price of a NintendoWii games console. This may be due to a rise in the cost of materials and parts and workers who produce it. Or it could be that the number of units available is less than the number of people wanting to buy it, so the price goes up. Around Christmas, it is likely for the latter to be true. It wouldn't be unusual around this time to find a NintendoWii on eBay at twice its retail price.

Deflation is the persistent decrease in prices. This happens when supply outstrips demand which could happen due to a surge in productivity. Or, like in the current climate, consumers rein in their spending which means that shops have to cut prices to entice customers to spend. If this happens a couple of times, it creates an anticipation of further cuts in the future. So, although consumers may have the purchasing power, they postpone certain purchases since they would be cheaper in the future. Its a self-fulfilling prophecy where consumers postpone their spending thinking that there would be price cuts, and sure enough, shops cut the prices to persuade shoppers to loosen their purse strings. Good news for shoppers, bad news for businesses. Businesses experience cash flow problems and their staff would have to accept a pay cut or even lose their jobs. So, debt becomes expensive because one owes the same amount of money, but has less income to meet it. Signs of deflation can already be seen on the high-street. Retailers are offering massive discounts, the likes of which are usually seen after Christmas, because they are desperate to clear their stock. And the consumers know this and know that further discounts will follow eventually.

It will be interesting to see how Mervyn King and the Government will go about coaxing the shoppers to spend their money.

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Cool to be Frugal

According to Andy Bond, the Chief Executive of ASDA, its now becoming cool to be frugal and not so cool to be frivolous and wasteful. He feels that consumer's shopping habits are changing and a new generation of shoppers who are thrifty are emerging as the credit crunch begins to bite even further.

So what does this really mean? It means that consumers will now focus more on products that offer them value for money and will aim to eliminate waste. Value for money doesn't really mean something that is priced less or discounted. It is actually something that offers satisfaction and quality for its price. Consumers will increasingly try to differentiate their "needs" from their "wants" and think carefully if they really need something or do they just want it. For example, ASDA noted that consumers are beginning to shift from buying ready meals to buying ingredients and cooking at home. People are also beginning to mend or fix items rather than getting rid of them and buying new ones. Cobblers, for example, have seen their business increase since consumers are coming in to get their shoes mended rather than splashing out on a new pair. A quick search on Google Trends showed that visits to the comparison site moneysupermarket.com and myvouchercodes.co.uk which lists voucher codes across a variety of stores had more than doubled.

What's really interesting is the 40% increase in the number of people who are ignoring best-before dates and consuming the product rather than throwing it in the bin once it is past its sell by date. Perhaps the increase has also something to do with the numerous reports on saving money on television featuring people who regularly consume food, as long as it looks fit, well past the best before date. Consumers are also freezing leftover food rather than wasting it and sales of bottled water and smoothies has also been said to have decreased since many are opting to fill tap water and eat fresh fruit instead.

It is important then that retailers spot this trend and adjust their business models accordingly in order to survive the downturn. Thrifty consumers would focus on long term value and would be willing to spend a little bit extra on an item that is likely to last longer than buy something cheaper in price which would also be cheaper in quality and hence not last as long. Rather than reducing prices on cheap Christmas stocking fillers that perhaps wont even last till next Christmas, retailers should instead focus on reducing prices on items that actually are of some use to the consumers. Also, thrifty consumers are less likely to buy items on impulse which retailers greatly depend on. So, businesses should make sure that they are really operating on a low cost model which aims to eliminate waste as that would be the only way that they would be able to offer low prices and good service at the same time.

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Spend, Spend, Spend

According to recent figures from the British Retail Consortium (BRC), the value of total UK sales as of October 2008 were down 2.2% on a like-for-like basis as compared to last year. Food and Drink was the only sector to have shown an increase in sales. Consumers are cutting back and postponing purchases that are not needed and focusing on the wants instead. Buying patterns are changing as well since many now prefer to cook at home from scratch and are focusing on products that offer them value for money and are actually actively seeking out promotions, discounts and offers.

This is bad news for retailers who are desperately depending on Christmas sales this year more than ever. No wonder then that for many high street retailers, Christmas has indeed come early this year. Discounts and promotions which are normally seen after Christmas are beginning to make their way into stores at a high street near you- five weeks before Christmas.

Leading the way is Debenhams, who is having a “spectacular” three-day sale, starting today, where many of the products are going to be 20-25% cheaper. But its Marks & Spencer who is receiving the most attention and media coverage for its “20 % off” sale for only one day-tomorrow. Other high street retailers are likely to join the battle to fight for every penny of the consumer’s disposable income this season. In the coming weeks leading up to Christmas, more and more such promotions will come out to entice people to come in and spend their money.

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But, as Gillian Lacey-Solymar pointed out on BBC’s Working Lunch, these promotions are likely to happen on weekdays. This is because the promotions are meant to draw people into the stores, which they do anyways on weekends, and so there is no point offering them heavy discounts then if they are likely to settle for less.

It is highly unlikely that these promotions will have a huge impact since people will only buy it if they perceive it as value for money and more importantly, if it is on the top of their priority list. The truth is, people are still being squeezed by rising utility prices and high food prices. Also, almost every other day a well known business announces job cuts which is likely to make those still in employment worry about their security and hence, save every penny they can.

Undoubtedly, all these promotions are good for the consumers. But, offering such huge discount means that retailers are effectively cutting their profit margins, or sometimes even making a loss just to shift their stock. What this means is that in the long term, many retailers will not be able to sustain themselves and it will not be financially viable for them to operate any longer, and hence will go bust.

So what? Well, this would result in job losses, numerous suppliers losing their orders and so on. When the economy does recover, it will mean one less competitor in the marketplace and hence, less competitive prices.

So, in the short term, the promotions are good for the consumers, in the long term however, maybe not.

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Children help their parents spend their money

According to recent news, parents are unwittingly spending £191 million a year to fund their children’s shopping habits. Or rather, the children are doing it for them on their behalf to save their parents the trouble of doing so. According to a survey consisting of 500 parents and 500 children, around 20%, or 1 in every 5, children have admitted to using their parents’ credit card for their online purchases.

The items in the shopping basket include the latest electronics, games, etc. Put simply, items that are on every child’s wish list. The age of the children ranges from 8 to 16 years and the value of the average purchase is said to be around £25. Of the parents surveyed, only 2% felt that their children would purchase goods online without their permission. 20% of the children also knew their parents’ username and password for their shopping websites. This made it easy for them to access their accounts and place orders.

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The recent strain being put on personal finances due to the rise in prices and unemployment would have undoubtedly led to parents cutting back their spending on buying the latest gadgets and gizmos and branded fashion accessories for their children. This means that the children feel “left out” when all their peers have the latest mobile phone or mp3 player and they are stuck with the “old” one.

Certain companies prey on this insecurity that the children harbour by pressurising them to purchase, or rather pester their parents to purchase the products that are endorsed by their “heroes” whom they “look up to”. The advertising method is such that it sends out the message to youngsters that a brand name is much more important than they product itself. It is endorsed by a well-known celebrity and therefore it’s cool and fashionable to own it and most certainly well worth the expensive price tag.

Often, the prices of these products are 2-3 times the price of their unbranded, store own-brand or less known branded counterparts. The obvious reason for this is that it allows the companies to “skim” the market, or in other words, pricing their products higher than the competitors since they know that the consumers will still want to buy them.

In August this year, The Association of Teachers and Lecturers expressed concern when their research showed that children who didn’t have the latest gadgets or wear garments that didn’t sport a fashionable logo were often bullied and mocked by their peers.

The report also highlighted how “brand aware” the children are and how in the race to be up-to-date, they end up having low self esteem and self confidence because their “net worth” or “net value” amongst their peers is judged by the brands they own.

In essence, what these companies are doing is “adding value” to a product by merely associating it with their brand. So, what you end up paying for is the brand. Of course, many might argue that many branded products do offer good value for money because they are of a better build quality. And what you get in return for the premium charged is peace of mind that the product will last. No doubt, this is true. But then, this isn’t true in all cases.

Interestingly, 30% of the parents’ admitted to saving their banking details online.
If the children can easily access them, just imagine how easy it might be for a fraudster to access the details. Then the orders might not be for £25, but more like £2500.

http://ukpress.google.com/article/ALeqM5i_9ZhcHk7F5v3WAReNAjjeFmrMxg
http://news.bbc.co.uk/1/hi/education/7549770.stm
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Sales at Poundland and Thorntons thrive

Poundland, the single price retailer where everything costs £1, announced that its operating profit for the financial year ending March 2008 had risen by a staggering 122%. Its profits rose from £3.6 million to £8 million. This shows that consumers are abandoning traditional retailers and heading for discount stores to save money. However, the interesting thing is that Poundland claim that they have seen a 20% rise in shoppers belonging to the AB social class. AB social class consists of the upper middle class and the middle class and typical occupations include doctors, lecturers, accountants, company directors, etc. This is interesting because those belonging to this class are generally associated with shopping at stores such as M&S, John Lewis, etc. and would rarely be seen, or want to be seen, at a discount store. It seems nobody is immune to the credit crunch, not even the rich. The Times recently reported that Lakshmi Mittal, Britain’s richest man, recently saw the weight of his fortune become a little less heavier as he lost £16 billion due to the drop in the share prices.

Thorntons, the well known chocolate maker, announced that its sales for the first quarter had risen by 6.4%. In addition to its own stores, Thorntorns also has numerous franchisees and also sells to supermarkets. Sales in its own stores grew by 4.9%, while sales at franchise stores and retailers grew by 2.4% and 11% respectively. Although consumers are cutting their spending and avoiding expensive brands and switching to discount stores, they still like to treat themselves occasionally. Thorntons has a well known brand name and a reputation for quality. It has numerous products for under £5 many starting at around £1.15. Add this up and Thorntons has a product that is able to keep up its sales even when other products which are deemed a luxury suffer falling sales.

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Retail Sales affected by Wet Weather

According to the figures released by the British Retail Consortium, retail sales fell for the third consecutive month as the wet weather kept most of the shoppers indoors. Like-for-like sales for August were 1% lower than last year. DIY and gardening product sales fell due to the wet weather. However, furniture and home ware product sales fell the most.

On the other hand, the appalling weather conditions and the fact that many

are avoiding eating out due to tightening budgets, meant that many preferred to cook at home which in turn saw the sales of food and drink grow significantly.

http://www.londonstockexchange.com/en-gb/pricesnews/investnews/article.htm?ArticleID=18770586

http://uk.reuters.com/article/businessNews/idUKL89821720080908