When the GDP falls for 6 months or more, this is technically known as a recession. Although we are not officially in a recession now the GDP has not grown so many businesses are struggling because of demand falling and profits down. Some companies have reported good profits eg Tescos and Marks and Spencer have seemed to do well over the Christmas period. Marks and Spencer have reported higher sales of their food, particularly the fine food but sales in their clothes have fallen so people do seem to comfort themselves with nice things to eat and skimp on clothes. This will obviously affect some manufacturers more than others with those in the food sector doing very well but the textile manufacturers struggling.
Cadburys have also seen an increase in their profits so not all retailers are suffering. They have found that when people are a bit worried about the economy, their jobs and rising prices they often turn to chocolate to cheer them up so these manufacturers are doing reasonably well. However they still have to buy the raw goods like cocoa on the world market so are dependent on global prices and exchange rates. This can have an impact on prices but for the moment, it does not seem to have deterred people. We are in a slump at the moment because of a down turn in the economy, GDP has fallen and house prices have dropped. In a slump businesses can close, factories and manufacturers can go out of business and there can be high redundancies. This leads to high unemployment which will have an impact on the retail industry because people will not have as much disposable income.
All downturns eventually lead to a recovery because the government takes corrective action or inflation rates fall which makes our goods competitive again. Businesses have to respond in different ways to a downturn in the economy to find ways to reduce costs until the recovery is underway. For retailers the biggest cost is staff so it is likely that they will be made redundant. There are risks in this strategy that the recovery will take place sooner than expected and the company will have got rid of skilled staff. However in retail this sector is used to fluctuations in demand because it is a seasonal business with a high turnover of supply and temporary staff so they are probably in a good position to respond to changes in the economic situation. However the manufacturers are in a more difficult position because they buy their raw goods in a global market. In an economic downturn they will be hit the hardest because they will have incurred the costs already so can not change course very easily. Their options will be limited but, if they make staff redundant it will not be so easy to decrease and then increase
Capacity if the markets pick up. Sealine, a luxury boat builder in Kidderminster made massive redundancies 12 months ago and lost many skilled workers because of a problem with cash flow, bank loans and a downturn in orders but, the picture now is more positive with increasing orders and the need for skilled workers. The use of temporary staff is more common now so that employers can be flexible and respond to the economic situation. This is better for employers but offers less job security for the staff and makes it harder to take on commitments like higher mortgages so this feeds in to an unstable economy.
The retail industry is particularly affected by the rise in fuel prices and the recent economic situation has seen an increasing and steady rise in prices. Goods have to be transported to our high street shops and the rising fuel prices feed into the costs of the goods and in turn prices in the shops. There is a point when customers will have to make choices about where to shop. The food retailing industry is very competitive and has responded to customers hunting out a bargain. They are driving down costs by offering special deals and lowering prices on everyday goods. This will hopefully keep the customers loyal to this shop but as the economic situation gets worse, people will increasingly shop around.
The large scale redundancies in the public sector which are a result of a budget deficit will have an impact on the retail sector because there will be less disposable income. This deficit is the difference between the money the government raises in taxes and the money it is spending on public services. At the moment the government is spending huge amounts servicing the county’s debts on loans so the policy is to reduce the public service costs and reduce the debts.
The UK economy is in a downward turn at the moment largely due to the banking problems in 2008 and the new government policy of reducing the deficit in a very quick timescale so that there is a squeeze on public services. People generally feel uncertain about job security, pay rises are frozen in many sectors but prices are rising so people are going to see a drop in their income. The retailing industry is at the front end of this with people making choices about where and what to buy. Some luxury goods are still in demand because of people on high incomes maintaining their standard of living. Despite the banking crisis and bale out by the government, employees are still getting high bonus payments. Manufacturers are being hit by the exchange rates if they are importing raw goods and the rising fuel prices. They are also under threat if production can be moved to cheaper countries where staff and machinery is cheaper.