Toughing it out

Viewing the general air of gloom that now prevails in the current climate it is hard to remember the halcyon days of easy money (credit) and the all pervading feeling that the party would never stop.

 

There is no doubt the world and his wife embarked upon a collective spree for which we are now picking up the bill.

With the benefit of hindsight the warning signs were there to see but these were readily ignored.

One quotation springs to mind “they that sow the wind, shall reap the whirlwind".

The problem now is that as always there is an over-reaction and just as we never saw the top there is also the certainty that we will not see the bottom.

 

What is needed is a clear and unemotional assessment of the current climate, whilst few would dispute that difficult times lie ahead we are far from a financial Armageddon.

 

As always the markets are driven by fear and greed but the importance of sentiment should not be overlooked. Until and unless the Doomsayers gain a sense of perspective it will be hard to imagine business and economies on a sustained stable footing.

 

The Chinese Dragon catching its breath

Analysts report that growth in China's manufacturing sector slowed in April,  adding to concerns about the country's economic recovery.

A drop in new export orders was blamed for the decline, a sign of weak global demand.

Last year, China's economy grew at its slowest pace in 13 years.

New export orders contracted after a temporary rebound in March, suggesting external demand for China's exporters remains weak.

Banks have cut their full-year growth forecasts for China after an unexpected slowdown in the first quarter.

Growth in gross domestic product for the first three months of the year declined to an annual rate of 7.7%, compared with 7.9% in the previous three months.

The World Bank, as well as private sector banks, said they expected growth to slow to 8% this year, though that is still high by global standards.

The government has said it will take steps to try to support the economy.

European markets are crucially important to China but with European economies in a fragile state the implication for export growth is obvious and the potential for the Euro debt crisis to spread would result in a further decline in export growth in the months ahead.

Triple dip avoided but much still to be done

The Fitch credit ratings agency has downgraded the UK to AA+ owing to a weakened economic outlook.

The move, after Moody's downgrade in February, came as Chancellor George Osborne defended the government's austerity plan.

Fitch said its downgrade primarily reflected a weaker economic and fiscal outlook.

As the UK government wrestles with its debt burdens the only certainty is there is no silver bullet.

 

The all pervading sense of nervousness will continue to impact on all business sectors. The days of easy access to finance are long gone.

 

Companies need to focus on their exposure at every level ranging from inventory levels, rate of stock turn and the integrity of the debtor’s book.


Operating in this current climate of austerity will provide the ultimate challenge for those managing companies, be it an SME or a large multi-national corporation.

“Showrooming” adds to woes of hard pressed retail sector

  

The rate of retail outlets closing in the UK shows no sign of easing following a grim 2012, when a net 1,779 closed. That represents a 10-fold increase from the 174 in 2011 and reflected casualties including Game Group, JJB Sports, Blacks Leisure and Clinton Cards. Although many of the companies were salvaged in one form or another, hundreds of stores closed. 

With the rise of online shopping the chains did not need as many stores as they did in the past, a trend that looks set to accelerate this year. 

People have got less money in their pockets, employment is tighter and also we've seen a massive growth in the supermarkets in terms of non-food retail.

Now further adding to the problems of the “bricks and mortar retailers” is the rise of “showrooming”. Essentially customers going into a shop to browse but in reality an exercise to check out goods and then search on line for a more competitive deal.

The growth of online shopping is a juggernaut now accounting for 12% of retail sales - and forecast to be at least 30% by 2020. 

Those retailers who fail to exploit all areas of multi channel marketing whilst finding themselves saddled with the burgeoning costs of maintaining retail outlets will continue to suffer and produce more casualties in the sector in the coming months.

 

Companies struggling to secure funding

Latest figures from the Bank of England confirm that lending to businesses in the UK has fallen by a further £4.8bn in the three months to February.

That represents a fall of 4.4% in loans to companies and small firms from the same period a year earlier.

Despite previous rhetoric it is now apparent that some banks are still trying to increase their reserves, rather than lend more money out. 

As the Banks continue to labour under the weight of their previous errors the knock on effects are percolating down through the economy.

 

With both new and additional funding hard to access – now is the time to take a long hard look at your Company’s financial situation.  

Any approach to your Bankers could be very uncomfortable in the current climate so it is necessary to demonstrate you have full control of your exposure. Make sure that the Debtors book makes for healthy reading and that inventory control and stock turn are being monitored very closely.

Ironically it is the activities of Banks themselves who precipitated the ongoing crisis but that will not prevent them from playing hard ball with anyone trying to seek support for additional funding in the current climate.

 

Respect geography or suffer the consequences

 

One of the most valuable commodities available to any organisation is local knowledge.

How many times has a venture ended badly owing to a basic failure to understand and deal with local market conditions?

Tesco is winding up its US chain of 199 Fresh & Easy shops, which have never made a profit, at a cost of £1.2bn.

As well as the US withdrawal, Tesco is exiting Japan and said it would take "a more measured approach to our growth in China".

This is a classic case of going for growth and failing to understand that a successful domestic business strategy does not always travel well.

For companies wishing to establish a commercial operation in the UK they are faced with a mature and sophisticated market. Although offering different challenges to operating in for example a developing market there are still obstacles in trying to establish a presence.

Operating overheads present a crucial challenge and this is where we can assist you to achieve a cost-effective solution to marketing your products in the UK. 

Take a look at our website www.glbconsulting.co.uk to see the services we offer.

 

Avoid damaging relationships with Suppliers

 

The most important component in any business relationship is the question of trust.  

The ultimate demonstration of trust and good faith is when a Supplier delivers goods to a Customer on Credit terms.  

It therefore is incumbent on the Buyer that they acknowledge this act of trust and observe the agreed payment terms.  

With the current pressures it is easy to understand the temptation of “pinching” a few days extra credit but this type of behaviour soon begins to pall.

Once a Supplier feels that their Buyer is taking undue advantage the relationship is damaged sometimes irreparably.  

For any relationship to be sustained there has to be mutual benefit. When a Buyer gains a reputation for persistently crossing the line the merit in maintaining the account is called into question.