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Wednesday 25 April 2012

UK Economy is in a Double Dip Recession - What is a double dip recession?

Figures released by the UK, Office for National Statistics (ONS), show that the UK economy is now in a double dip recession; the first time since the 1970s. What does the term double dip recession mean? The first step in understanding what a double dip recession is, involves defining the word recession. A recession is when the economic activity (GDP) of a country falls in two consecutive quarters (of the year). For example Jan, Feb, Mar and then Apr, May, June.

Economic activity in the UK is measured by the ONS and is reported as a figure known as the Gross Domestic Product (GDP). The Gross Domestic Product is the total value of goods and services produced by a country over a set period. The GDP for the UK in the first quarter (Jan, Feb, Mar) of 2012, was 0.2% less than the previous quarter. The GDP for the quarter covering Oct, Nov, and Dec 2011 was 0.3% less than the quarter before that. This means that GDP has fallen in two consecutive quarters and the UK is now in recession. GDP fell in quarter 4 of 2010 and quarter 2 of 2011 but as the falls didn't cover two consecutive quarters they weren't defined as a period of recession.

A double dip recession is when a country that managed to climb out of recession, falls back into recession. As the UK was last in recession in 2009, the current recession means that the UK is now experiencing a double dip recession. It is known as a double dip because if you drew a line showing how the economy was growing or shrinking, the line would go down (for the first recession), back up again for the period of growth and then back down again during the second recession.

If you would like to demystify more economic terms click on the following link:

Monday 26 March 2012

Does China's Economy Have A Small Puncture?

China is the world’s second largest economy. China is also the world’s fastest growing economy but recent events suggest that things are about to change. For 2012 China has set its lowest growth target for the country (since 2004) at 7.4%. In March China’s manufacturing activity suffered its fifth monthly fall.  A fall in manufacturing will impact on China’s economy because manufacturing has made a big contribution to the economy’s success.
China has been exporting a large percentage of the goods it makes, so a drop in export demand will affect its economy. China’s largest exports are to the USA and Europe. Unfortunately for China both of these areas have been experiencing economic problems for a number of years. Recently the US and some European countries have had their credit ratings slashed. Whilst Italy and Greece have implemented emergency economic measures and the Republic of Ireland went back into recession at the end of 2011.
A slowdown in China is a concern for countries like New Zealand who export dairy goods to China. A slowdown also causes concern for analysts who believe that a global economic recovery will require a strong economic performance from China. Others may argue that China's recent action to cool down its property market is evidence of China's decision to opt for sustained growth instead of speedy and uncontrolled growth and it's not time to panic. Only time will tell who is correct. 

Thursday 15 March 2012

Tesco Supermarket's UK Chief Executive Resigns

In January we discussed disappointing sales for Tesco supermarket in the UK over the christmas period. We also questionned whether Tesco was beginning to lose its position, as the leading supermarket in the UK. Today it has been revealed that Tesco's UK Chief Executive Richard Brasher has decided to leave Tesco. This is in response to Tesco Group Chief Exceutive Philip Clarke's decision, to take control of the supermarket's UK operations, in addition to his global role. Tesco's share price dropped in January following Tesco's announcement of poorer than exepected sales in the UK over the Christmas period. However Brasher's resignation decision does not seem to have affected the share price.An increase in share price indicates that investors believe that the event (in question) is likely to benefit an organisation, whilst a drop suggests (that they feel) it will be detrimental but lack of movement in the share price is difficult to gage. Does it mean that investors were expecting the event or are they simply unsure of its impact on the organisation. If the latter is correct it's not surprising; at this stage it is difficult to assess whether Philip Clarke will be able to balance his global duties with restoring Tesco's glory days in the UK.

Tuesday 17 January 2012

UK Retailers Peacocks and Bonmarche to be put into administration

Yesterday Peacock Group, owner of high street retailers Peacocks and Bonmarche announced that it is going to put both businesses into administration. The Peacock Group are part of a long list of retailers struggling in the current economic conditions. In the past year a number of UK retailers went into administration (e.g. Jane Norman, Habitat, La Senza and Barratts) whilst others announced store closures (e.g. Arcadia Group, Carpet Right and HMV).However some retailers such as Debenhams reported better profit margins (during the Christmas sales period) than expected. Whilst others (e.g. Next, John Lewis and Marks and Spencers), reported a rise in online sales over the Christmas period. As these retailers are not discount chains it may suggest that in the UK "the traditional retail high street's" struggles are due to factors in addition to consumers with reduced spending ability.  

Sunday 15 January 2012

Is it time for someone else to take Tesco's supermarket crown?

This week UK based supermarket giant Tesco announced a drop in sales over the Christmas period. This wiped off £4.9billion from its share price. Unfortunately for Tesco its UK rival Sainsbury's announced record Christmas sales. This is the first Christmas period since Sir Richard Broadbent was appointed chairman and Phil Clarke took over as chief executive. If you were in Sir Richard Broadbent and Phil Clarke's position how would you deal with this crisis. The solution could be more complicated than blaming the current financial crisis as rival UK supermarkets which are known to offer more expensive products than Tesco reported an increase in Christmas sales. For example Waitrose report a 3.8% increase in like for like sales in December 2011 compared to the same period in 2010.

Following Tesco's profit warning city traders are expecting a supermarket price war, this has resulted in share price drops for other UK supermarkets for example Morrisons Waitrose and Sainsbury’s. This share price drop is despite some businesses announcing good sales results and is a good example of the impact of competitive rivalry as described by Porter in his Five Forces Model. Porter's Five Forces Model is about the five key factors that influence an industry's performance.

The question for UK supermarkets is whether the share price drop is a temporary glitch or an indication of long term issues that need to be dealt with. Either way they need to decide what to do. Furthermore as Phil Clarke has announced that Tesco will be revising their UK business strategy, competitor supermarkets will need to ensure that their strategy includes flexibility to respond to Tesco's plans. This may be achieved through a combination of crisis management  scenario planning and strategic management. Crisis management will enable a business to deal with periods of intense difficulty or danger whilst strategic management is about deciding how to achieve your objectives during “business as usual” trading conditions. Scenario planning is about looking at possible situations that could interfere with your business and planning in advance how to deal with them so that you minimise disruption and business loss. An example may be a crop disaster or a supplier failure. 

As we all know this is a challenging time for businesses and world economies. In August 2011 heavy weight USA lost its triple AAA credit rating and this week France was on the list of European countries receiving a credit rating downgrade. The euro is struggling and the number of employees prepared to strike is on the increase. It will be interesting to see how supermarkets entice consumers dealing with rising costs and reduced income. Will Tesco be able to resuscitate their sustained 20 year period of growth? Or is it time for someone else to take the UK supermarket leader crown?