This autumn has been one of the mildest on record. Whilst this may be very nice for most of us, certain industries have been suffering. For example, gas and electricity consumption is down as people delay turning on their heating. One sector particularly badly hit has been clothing. Sales of winter clothes are substantially down and many retailers are longing for colder weather to boost their sales.
Of course, this is not helped by consumer incomes. With inflation at around 5% and average (pre-tax) weekly earnings currently rising by less than 2%, real incomes are falling. In fact over the year, even nominal disposable incomes are down 2.1%, given the rise in national insurance and income tax. And the problem of falling incomes is compounded by worries over the future state of the economy – whether it will go back into recession, with further falls in real income and rises in unemployment.
It’s no wonder that retailers are longing for some cold weather and for their customers to return from the seaside or their garden barbecues to the shopping malls. Look out for the ‘sales’ signs: they’re beginning to spring up as desperate retailers seek to attract wary customers.
Webcast
Retailers slash prices in Christmas build-up BBC News, Tim Muffett (25/11/11)
Articles
Winter woes: warm weather means shoppers aren’t buying as much Guardian, Zoe Wood (21/11/11)
Shoppers urged to be savvy as Christmas sales last for weeks The Telegraph, Victoria Ward (21/11/11)
Data
Earnings tables: Labour Market Statistics ONS (November 2011)
Personal Income and Wealth ONS
Price Indices and Inflation ONS
Personal Inflation Calculator (PIC) ONS
Questions
- Identify the determinants of demand for winter clothing.
- How responsive is demand likely to be to these determinants (a) over a period of a few weeks; (b) over a period of a few months?
- What factors should a retailer take into account when deciding whether to make pre-Christmas discounts?
- Assume that you are employed but are afraid of losing your job in a few months’ time. How would this affect your consumption of (a) seasonal goods; (b) durable goods; (c) day-to-day goods?
- What longer-term strategies could retailers adopt if they predict tough trading conditions over the next two or three years?
In the blog Has Merlin lost his magic, the issue of banks failing to meet their lending targets as set by the government was considered. Small businesses have been finding it difficult to obtain bank loans to help their business grow. Vince Cable has gone so far as to say: ‘There is a serious problem with lending to good, small companies.’ As a result of this, new sources of finance are being sought and one innovative approach has come to the forefront: crowd funding. People group together by pooling their money and investing in ideas or businesses. The attraction is that it doesn’t require huge amounts of cash, but with enough potential investors, significant amounts of finance can be raised. The following BBC News article looks at this innovative approach to financing a business.
Small firms seek crowd funding BBC News, Catherine Burne (27/5/11)
Questions
- What is the attraction of crowd funding?
- Are there any risks of this method of finance to the investors and to the firm seeking investment?
- What are the disadvantages of crowd funding relative to something like investment from a venture capitalist?
- How important is the size of the firm when it comes to the viability of crowd funding?
Apple and Google: two well known brands that appear everywhere, but which is the most valuable? For the past few years, the answer to that question has been Google, but with recent product developments, including the iPad, Apple has overtaken Google to become the world’s most valuable brand. This information comes from a recent study by Millward Brown, which found that Apple’s brand is now worth some £94 billion ($153.3bn), which is up about 84% on the previous year.
The study showed that of the top 10 brands, 6 were technology and telecoms companies, which is further evidence of the move towards the technology-based economy. Another interesting trend to come out of the report is the development of the emerging markets, with 6 more companies coming from emerging economies compared to last year. Indeed 12 of the top global companies came from China. Besides Google and Apple, who occupy the top 2 places, other companies in the top 10 include Coca-cola, McDonalds, IBM, Microsoft and General Electric. The following articles look at this overtaking move by Apple.
Apple brand value at $153 billion overtakes Google for top spot Bloomberg, Tim Culpan (9/5/11)
Jobs well done: Apple overtakes Google as the world’s most valuable brand Daily Mail (9/5/11)
Apple overtakes Google as top brand: Study Market Watch, Dan Gallagher (9/5/11)
Success of iPad helps Apple topple Google as No 1 brand Independent, Stephen Foley (10/5/11)
Apple overtakes Google as world’s ‘most valuable’ brand Telegraph (9/5/11)
Questions
- How reliable is this study and how is the value of a brand measured?
- What factors have contributed to Apple’s climb up the tables? Is it because of Apple’s good work or problems faced by Google?
- What are the main trends to come out of the study?
- What might explain the growing presence of fast food companies in the top 100?
- Why is there a growing presence of companies from emerging markets in the top 100?
- Should Google be concerned about this report and what could be done to reverse the situation next year?
We frequently hear about two companies merging with each other, whether for certainty, market share or economies of scale. However, in this case, we’re looking at a de-merging of one company to create two companies. Foster’s will be split to create two stand-alone companies.
With Foster’s retaining its beer business, a new company called Treasury Wine Estates will take over its ailing wine division. This split comes after 99% of investors cast their votes in favour of the split. The future profitability of this demerger is uncertain and how the stocks of the two separate companies trade in the coming months will give a clear indication of whether or not this divorce is the right move.
Foster’s votes to split beer and wine business Telegraph, Richard Fletcher and Jonathan Sibun (29/4/11)
Investors agree to split Foster’s into beer, wine units BBC News (29/4/11)
Two halves: Foster’s to split its beer and wine operations Mail Online (29/4/11)
Foster’s wine-beer demerger to clarify divisions’ value The Australian (30/4/11)
Questions
- What type of de-merger could we call this?
- How do you think the share prices of the 2 separated companies will fare following the de-merger?
- How concentrated is the beer and wine market? What effect will the de-merger have?
- In the BBC News article, Donald Williams says ‘The wine business needs a better pricing environment before it is likely to perform.’ What does this mean?
- Why has the wine division been a financial drain for so long?
Nokia and Microsoft have announced that they are to form a strategic alliance. This will see Nokia using Windows Phone as the software platform for its smartphones. This follows problems with Nokia’s own Symbian software and the success of Apple’s iPhone and Google’s Android software.
Recognising the depth of Nokia’s problems, its new boss, Stephen Elop, sent a memo to staff with apocalyptic warnings. He likened Nokia’s position to one of standing on a burning oil platform about to be engulfed with flames.
So is the alliance with Microsoft the way out of Nokia’s problems? Will it bring problems of its own? The following articles look at the issues.
Nokia to Use Microsoft Software in Smartphones New York Times, Kevin J. O’Brien (11/2/11)
Nokia, Microsoft to Join Forces to Challenge Apple Dominance Bloomberg, Diana ben-Aaron (11/2/11)
Nokia: ELOP’s challenge Bloomberg, Martin Garner (11/2/11)
Nokia falls into the arms of Microsoft The Economist: Newsbook blog (11/2/11)
Nokia and Microsoft sign strategic tie-up Guardian, Graeme Wearden (11/2/11)
Nokia and Microsoft form partnership BBC News (11/2/11)
Is the Nokia/Microsoft horse a stallion or a tired nag? BBC News blogs: Peston’s Picks, Robert Peston (11/2/11)
Microsoft and Nokia announce my dream partnership so why aren’t you all happy? ZDNet (CBS), Matthew Miller (11/2/11)
Questions
- What is meant by a strategic alliance? What forms can a strategic alliance take?
- For what reasons are Microsoft and Nokia forming a strategic alliance?
- How does Nokia hope to benefit from the alliance?
- How does Microsoft hope to benefit from the alliance?
- Why is Nokia’s share of world profits in the mobile handset market much less than its share of total handset sales (see The Economist article above)? Conversely, why has Apple such a large share of world profits in the handset market (just over 50%) and yet only a tiny market share?