Deposits Fall by £2.3 billion

25 02 2009

northern-rock-queue1According to the figures released by the BBA (British Bankers Association), deposits in the high street banks fell by £2.3 billion in January alone.

One of the reasons for this is that people who have lost their jobs are having to use their savings to supplement the loss of their income. Even those who are still employed, but have been forced to reduce their working hours or accept a pay cut, have to withdraw from their savings to meet the shortfall. Those who bought houses when the prices were at their peak are having to use their savings to bridge the gap when their mortgage nears renewal. Many are also dipping into their savings to pay off their credit card bills from Christmas and other unsecured loans.

Also, with the base rate at 1% most high street banks are offering almost no significant rewards to savers for their money. There is almost no incentive for people to save. So, those with savings are looking for alternative forms of investment, something that will at least give them a rate of return above or at least matching the inflation rate.

Free Audiobook Downloads – 14 day Free Trial

A typical banking model is banks borrowing money from savers in the form of deposits and lending that money out to borrowers in the form of mortgages, loans, credit cards, overdraft, etc. The bank charges the borrower a fee, in the form of interest, for the sum of money that is lent out. The bank gives the depositor a reward, in the form of interest, for allowing it to use its money. The fee that the bank charges the borrower is slightly higher than the rate which it pays out to its depositor, and the difference is pocketed by the bank.

Banks are still finding it difficult to borrow from the money markets. And even if they can, its going to be really expensive, which means that the extra cost would have to be passed on to the borrower. So, if deposits are decreasing and savers are withdrawing more money, banks have very little to fall back on. Also, savers have, to a great extent, lost faith with the banks. They will no doubt feel that their hard earned cash is being used to pay bonuses and reward failure.

Reliable web hosting from Yahoo! Web Hosting – 25% off for a limited time!

It seems like banks will have to go a long way in winning the trust of the consumer and offer more than the paltry rewards to attract their savings. Without the deposits, they’ll find it really hard to fund the lending. Unless, of course, the name of the bank is Northern Rock which has access to the pockets of the taxpayers. Northern Rock was nationalised and was lent some £28bn by the Government last year. It payed back most of it, around £18bn, by forcing its existing customers to move to other providers. This week it pledged that it would offer new mortgages which will be worth around £14bn over the next two years. It most certainly wont be anywhere near the 100% it used to offer.

The overall sentiment seems to be that if bankers want their customers’ money, they will have to work really hard to get it, because the customers would rather spend it on themselves than paying the bankers to spend it for them.

Business Easy

Advertisements




Throwaway Fashion

21 02 2009

primarkThe 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.

Business Easy

3 months free Web Hosting from 123-reg!





Unemployment nears 2 million

13 02 2009

natwest-moneysense

According to the figures released by the BBA (British Bankers Association), deposits in the high street banks fell by £2.3 billion in January alone.

One of the reasons for this is that people who have lost their jobs are having to use their savings to supplement the loss of their income. Even those who are still employed, but have been forced to reduce their working hours or accept a pay cut, have to withdraw from their savings to meet the shortfall. Those who bought houses when the prices were at their peak are having to use their savings to bridge the gap when their mortgage nears renewal. Many are also dipping into their savings to pay off their credit card bills from Christmas and other unsecured loans.

Also, with the base rate at 1% most high street banks are offering almost no significant rewards to savers for their money. There is almost no incentive for people to save. So, those with savings are looking for alternative forms of investment, something that will at least give them a rate of return above or at least matching the inflation rate. 

A typical banking model is banks borrowing money from savers in the form of deposits and lending that money out to borrowers in the form of mortgages, loans, credit cards, overdraft, etc. The bank charges the borrower a fee, in the form of interest, for the sum of money that is lent out. The bank gives the depositor a reward, in the form of interest, for allowing it to use its money. The fee that the bank charges the borrower is slightly higher than the rate which it pays out to its depositor, and the difference is pocketed by the bank.

Banks are still finding it difficult to borrow from the money markets. And even if they can, its going to be really expensive, which means that the extra cost would have to be passed on to the borrower. So, if deposits are decreasing and savers are withdrawing more money, banks have very little to fall back on. Also, savers have, to a great extent, lost faith with the banks. They will no doubt feel that their hard earned cash is being used to pay bonuses and reward failure.

It seems like banks will have to go a long way in winning the trust of the consumer and offer more than the paltry rewards to attract their savings. Without the deposits, they’ll find it really hard to fund the lending. Unless, of course, the name of the bank is Northern Rock which has access to the pockets of the taxpayers. Northern Rock was nationalised and was lent some £28bn by the Government last year. It payed back most of it, around £18bn, by forcing its existing customers to move to other providers. This week it pledged that it would offer new mortgages which will be worth around £14bn over the next two years. It most certainly wont be anywhere near the 100% it used to offer.     

The overall sentiment seems to be that if bankers want their customers’ money, they will have to work really hard to get it, because the customers would rather spend it on themselves than paying the bankers to spend it for them.
Business Easy

Donate to WSPA here





Comet to charge suppliers for shelf space

27 01 2009
kesa-electricals-cometAccording to the Financial Times, electronics retailer Kesa, who owns Comet, has asked its suppliers to pay up to £15,000 for the pleasure of having just one of their product lines displayed on Comet’s shelves. Why? Well, according to Comet’s commercial director Bob Darke, its because of the tough economic times.
  
Comet must be stocking 100s if not 1000s of products. Do they really think that all the suppliers will pay a huge fee for each and every product displayed? They would have to sell hundreds of units of each product range just to make up this fee, let alone pay their direct and indirect costs. This would be a great strategy if (a) the economy was booming and (b) the amount of product ranges out stripped the amount of shelf space available. It would allow Comet to stock the most profitable product and earn a nice fee at the same time. Sadly though, the economy is not booming nor is it likely that suppliers are dying to have their products displayed on Comet’s shelves. Suppliers may in fact be forced to increase their prices to meet this fee otherwise it would add to the heavy losses that they already would be suffering from or they might even have to withdraw their product ranges entirely.
 
In an economy which is officially in a recession, increasing one’s prices is not exactly the best strategy. Everyday there are news of more and more job cuts. Even those who have jobs are spending less because they are worried that they might lose their jobs. At such times, consumers are likely to focus more on necessities and forget about the luxuries. And plasma tvs and mp3 players are not exactly as important as bread and milk such that people will be forced to buy them.
  
Kesa is not alone, almost all retailers are affected by the tough economic times. Many supermarkets deal with it by squeezing every last penny out of their supplier’s profit margins. Others buy on credit and exert their purchasing power by paying their suppliers after a long time. The supplier has no choice, he has to either accept it or lose the order. But I dont think anybody, not lest at this time, would charge their suppliers for shelf space.
I think Kesa’s move is akin to digging one’s own grave. It might as well just hand over its market share on a silver platter to its rivals.

Business Easy

Gas bills too big? Switch with Which? The independent energy service you can trust.





Hidden Costs of Redundancies

6 01 2009

jobcentre-plusThe number of people unemployed is rising everyday due to firms going bankrupt or businesses making some of their staff redundant as part of a “cost-cutting measure”. However, the Chartered Institute of Personnel and Development (CIPD) warned yesterday that redundancies could in fact prove to be a false economy for businesses.

It estimates that the actual cost of redundancy could reach up to £16,000 for each employee made redundant. This figure takes into account the redundancy payment and the costs involved in recruiting and training replacement staff. But, redundancies can also lead to lower staff morale because when employees see some of their colleagues being made redundant, they fear about the security of their own jobs. This leads to a drop in their productivity which in some cases would lead to the business losing its competitive edge over a period of time. The CIPD’s figures doesn’t take these factors into account.

For most businesses redundancies are the most straight forward ways of cutting down costs in the short term. Less staff means less wages to be paid each month. Although analysts and bankers and politicians cannot agree on how long it will take for the economic condition to improve, they all agree that it will improve in the near future.

When the situation does improve, a business should be in a position to meet the upsurge in demand if it wants a share of the increasing market. This does not only mean having enough number of staff, but staff that are properly trained and equipped with necessary skills to help them do their jobs to the best of their abilities and be efficient. So, when employees are made redundant, they take the skills that they have acquired at the firm’s expense with them and this is another indirect cost to the business.

When the economy is booming, there is demand for staff from businesses who want to grow. For those businesses that require staff with special skills, this could prove to be a costly affair because people with those specific skills might be hard to find. Also, if people with a particular skill are in high demand, the business would have to be prepared to pay a higher salary or offer lucrative perks or else the prospective employee might end up working for the competitor.

Most businesses have a Human Resources Department which looks at the company’s long term objectives and then works out the staffing needs like the kind of staff required, the kind of skills required, etc., to achieve these objectives. Rather than just making staff redundant, businesses looking to grow in the near future should perhaps evaluate their long term goals and view the currently unemployed people as a pool of highly skilled employees and recruit them cheaply to make the best of the up turn. To help realise the true cost of redundancy, the CIPD has created a formula for employers.

Real cost of redundancy = (n ×R) + (x ×H) + (x ×T) + ny(H + T) + Wz(P – n)

Where:
• n = number of people made redundant
• R = redundancy payments
• x = number of people subsequently hired
• H = hiring costs
• T = induction/training cost
• y = percentage quitting post redundancy
• W= average monthly staff salary
• z = percentage reduction in output per worker caused by lower morale
• P = number of people employed prior to redundancies

Business Easy
20 Free Digital Photo Prints

Get 30 free prints of your digital photos





High Street Blues

23 12 2008

BRITAIN-BUSINESS-RETAIL-SALESThe 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.

Business Easy

audible.co.uk





Sales rise amidst the credit crunch

19 12 2008
Oxford Street, London

Oxford Street, London

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.
1&1 Webhosting

Business Easy