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How tough was tough?
Retailers were overstocked going into Christmas. The trading statements will reveal weak sales achieved at a big cost to margins. Setting the scene Over the next 4 weeks we will bring you regular updates as the picture of Christmas trading becomes clearer. Key dates to look for are: 6th Jan Debenhams 7th Jan M&S 8th Jan Sainsbury’s 13th Jan BRC sales for December 23rd Jan ONS retail sales data for December (on a Friday, for a change) In this first article we pull together the evidence so far and try to set the scene. Autumn 2008 There had been plenty of evidence of growing consumer distress through the Summer. People were clearly beginning to trade down. Each M&S trading statement seemed to mark one further notch down in trading. The John Lewis Department stores data gives a good picture of how the middle mass market was reacting through the Autumn. The step down in September coincides with the failure of Lehmans. But the recovery in December shows how people were prepared to come out and spend and by the end the week on week declines were little more than could be explained away by the timing of Christmas. The BRC figures got steadily worse and actually reported sales falling in October and November. Late September saw the beginning of the financial crisis and there was certainly some evidence of a further deterioration in trading around that time But the ONS data was consistently strong and we have always argued that the ONS retail sales figures are likely to be nearest to the truth because they are based on a larger sample. It is hard to square the evident retailer distress at the time with the ONS data. The most likely explanation – and one backed up by some of Mintel’s own consumer research, comes from looking at the market in more detail. Those aged between, say, 25 and 50, were hardest hit by the problems of 2008 – the rapid rise in inflation, huge hike in fuel prices and the rise in interest rates. These were the mainstay of the household goods retailers, they had mortgages, children and Commitments. This was the group that began to trade down (witness the strength of Aldi and Lidl and Tesco’s launch of a discount range). Latest data on the savings ratio and housing equity withdrawal show consumers starting to rebuild their finances in the third quarter. But the younger end of the market who are very big spenders on the high street, were much less affected. No mortgage, much more disposable income, very fashion conscious and brought up with a culture of living off borrowings. The income squeeze that hit the older age group, more or less passed them by and they carried on spending. December But in late November or early December all that changed. The income squeeze was over because inflation was falling and interest rates were at a long term low. But now the credit crunch was beginning to have a direct impact on consumers. The economy was in recession and unemployment was beginning to rise. For the first time the younger end of the market began to feel threatened and the older group were seriously worried. M&S was the first to alert us to the high street problems when it had its first 20% off spectacular day (there were two more later). It coincided with a Debenhams promotion and John Lewis followed as well. The problem with an across the board cut is that the fastest moving merchandise will sell best and the company is still left with the less successful ranges to clear. Failures 2008 had seen several retail failures, but in late November there were two which rocked the sector and have dominated the national news ever since – Woolworths and MFI. MFI was the number two in the furniture sector, but there appears to have been no interest in a rescue and the business has been closed down. There appeared to be far more interest in Woolies, but no actual bid materialised. Shorn of its property assets when it was floated off from Kingfisher, Woolies had to justify itself in purely retail terms. There was no point in mourning its demise. It had never established a compelling reason for its survival and when demand turned down, its losses became unsustainable The administrator faced with the problem of clearing stock onto an unwilling market took the logical step of clearing through the Christmas season. It has worked and as the stores have come up for closure they have been virtually empty and everything, including fixtures and fittings, have been sold. The last stores close on Jan 5th. Woolworths was followed by Whittards, USC and Officers Club, though these have been slimmed down in so-called pre-pack deals and have emerged to trade on. Much the same may happen with Adams. Stocks The trouble is that when retailers were stocking up for Christmas, initially last Spring and then finalising orders in August / September, demand was still very strong. It was quite reasonable to suppose that demand would hold up through to the new year. That would have been the case with falling inflation, had it not been for the financial crisis in September and the lurch into recession. That meant that retailers had too much stock and the reason for the promotions in December was the realisation that stocks were too high just to be cleared through the sales in January. To go on full sale in December is a sign of real distress – the equivalent of hoisting a flag and saying “I’m in desperate trouble”. But for the first time for many years that is what actually happened. The distress was spread across the whole spectrum and for the first time there was clear evidence that the younger end of the market was cutting back. Warehouse, Wallis, H&M, Oasis, Mango, Uniqlo were all on Sale as much as a fortnight before Christmas. Even Ted Baker, until recently one of the best performing younger brands, had deep discounts. And there was a cut in VAT as well, but in the context of the 20% and more discounts available, the 2.12% cut in prices thanks to VAT was a complete waste of time and, in effect, a further cost for retailers to have to bear. The Woolworths clearance must also have hurt direct competitors because of sales lost to the deep price cuts as the administrator tried to maximise receipts. The “January” Sales The Sales appear to have started well. There were reports of huge crowds on Boxing Day and John Lewis’ sales were up 7% on last year on the first day of its Sale, Saturday 27th. One problem with going on Sale early is what to do when everyone else actually goes on Sale. The answer is usually to cut some more. So H&M, which was on a 50% Sales before Christmas now offers “up to 70% off”. In fact this year has seen another step in the inflationary spiral of discounts in the January Sales. “up to 50%” is the norm this year – as at Zara, among many others. Best placed are those that held their nerve and, as usual, Next gets top marks for this. It did not have to indulge in special promotions before Christmas and it followed its usual practice of cutting prices hard on the first day of the sale. It has opted for honesty and transparency as well. “All Sales items half price or less” say the signs. And by the time this picture was taken on Monday 29th December this particular store had remarkably little stock left in it. Other retailers have had to pay the price of heavy discounting before Christmas. Bhs had a “Half price Christmas Spectacular” before Christmas, and is now on “up to 60%”. Benetton is up to 70% off. But so is Debenhams, which, apart from the big discount days, otherwise held its nerve until Boxing day. So – how good was Christmas? Sales volumes rose sharply in December – that much is now clear. But those volumes were achieved through massive discounting, of which Woolworths was a significant part – in 2007/08 it accounted for 1.3% of all non-food retailers sales, and a substantially higher proportion of the markets it competes in. The surge in sales after Christmas was also on bigger discounts and may well prove to be short lived. We have been forecasting flat sales in value terms for December and we still feel that that is likely to be about right. 2009 Christmas was bad for retailers because they went into it overstocked. Retail sales had been so strong in the first three quarters of the year that they, quite reasonably, thought that the trend would continue through Christmas. But sales turned down and while the outturn in sales may not look too bad, the cost in margins will be severe. There will be many profits warnings this January and many trading statements brought forward for that reason.There will be more failures, some from the list above, but there will be others as well and some of them will be major high street names. 2009 will be the really tough year. Unemployment is rising fast, the housing market is in free fall. These are desperate times and the government’s actions look desperate. The trouble is that they are also inherently inflationary and any recovery is likely to be nipped in the bud by efforts to hold inflation down. Nor can we expect a quick recovery. No recovery will be possible at all until the banks start lending again and that could be well into the future. Rising bad debts and falling asset values will be the story of 2009 for the banks. Perhaps 2010 will be better.
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Too Many Complications?
A Plethora of Choice Traditionally, a large proportion of policyholders relied on the services of an insurance broker to make sure they found the best deal at renewal. However, the advent of direct insurers in the mid-1980s and 1990s has led to a gradual change in consumer behaviour, with around a third of general insurance business now conducted directly with insurers. At the same time, the number of insurers and providers has increased also significantly. Insurers, intermediaries, retail brands and price-comparison sites all compete for consumer attention, often pursuing aggressive advertising policies and heavy discounts to try and obtain a market share. Consumer as Detective Most consumers are regularly bombarded with direct mail, door-drop campaigns and TV adverts promoting a variety of insurance deals. For a significant proportion of people, finding their way through the maze of products and providers on offer presents a time-consuming challenge. Indeed, Mintel’s Brand Elements surveys regularly reveal that insurance brands tend to be poorly-differentiated in the eyes of consumers. Therefore, despite spending the highest amount of any financial service sector on advertising, this level of promotion appears to be counter-productive in terms of providing the buying public with clear choices and decisions. The Rise of the Aggregator More recently, the development of aggregator sites has added a new dimension to the process of buying or renewing insurance products. Although is widely regarded as a powerful tool to inform and empower consumer decisions, the raft of choices presented to those searching on such sites seems to epitomise the concept of the over-optioned consumer. In many ways, aggregator sites have replaced the traditional search and placement function of the insurance broker. However, with more than half of all adults highlighting price as a key consideration when buying insurance, in many cases aggregators have simply reduced the process of selecting insurance to finding the cheapest price. This in turn has significant implications for the future profitability of the sector, as well as raising the prospect of more people with inadequate levels of cover. Broadly speaking, the development of aggregator sites has been positive for consumers – providing a fast and efficient way of comparing a wide range of available products. However, with almost 20 different online financial comparison sites available, it is becoming increasingly difficult for people to decide between aggregator sites before they even consider their choice of product. With this in mind, could the increasingly convoluted and complex process of buying insurance actually have a negative impact on consumer attitudes towards purchasing general insurance products?
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Costly Times
The News International-owned paper The Times has increased in price from 80p to 90p, a move which it has said is 'inevitable', and which is the second price rise in a four-month period. The increase to 80p made in September 2008 put the paper at the same price as The Guardian, The Daily Telegraph and The Independent for the first time in a 15-year period. The latter two titles subsequently increased their own cover prices to 90p and £1 respectively, with The Guardian keeping an 80p price. From Print to Web Writing in the Feedback section of the paper, Sally Baker said that "it gives us no pleasure to ask readers to pay more in what will be a tough year for so many people, but...it was inevitable against the backdrop of the economic downturn and the ever-rising cost of newsprint." At the same time, Baker calls on "the legendary loyalty" of the paper's readers to ensure that the title weathers the tough climate - but even so, increasing the price is a risk. Loyalty of readers is key, of course, and unlike other markets where, for example, own-brand goods can be picked instead of brands, it is less likely that a Times reader will choose The Guardian because it is cheaper - there are deeper political and class issues at play. But what is likely is a move away from print. If the paper goes up in price, more and more readers will choose to visit the online version instead, getting the content for free and maintaining loyalty. Consumers will increasingly look to save money, and with 'treats' such as the daily coffeeshop visit suffering, perhaps the daily routine of buying the paper will also suffer - printed press is in decline, and the future looks certain to exist online.
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TransLegacy Universal Life Insurance CD from Transamerica Worksite Marketing
In a sea blue mailer, Transamerica promoted its Atlantis 2010 Convention to insurance producers. To play on the “City of Atlantis” theme, the direct mail pack featured underwater shots and an imitation statue from the lost city. The Atlantis 2010 convention would take place in the Bahamas, and the mailing included qualification information for those looking to attend.
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Energy Drink
Mintel GNPD Innovations Club Score Originality4/5Positioning4/5Formulation3/5Pack Design/Features3/5Pricing3/5Total17/25FRS Healthy Energy Drink contains quercetin, a natural, powerful antioxidant found in blueberries, red onions, apples and cocoa. The ingredient helps extend the body's natural adrenaline as well as neutralizing the oxidants in the body that cause fatigue. The product also contains antioxidants from green tea leaves, and key vitamins, so it can be regarded as a dietary supplement, as well as an energy drink. The orange flavoured drink is available in an 11.5-fl.oz. can, which states that FRS supports Livestrong, the Lance Armstrong Foundation.
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