I know I’ve touched on this subject before but it is far too important not to try and force home this point once again.Our media is talking us into a recession.
Jeremy Paxman was on Newsnight a few days ago once more talking about the impending calamity that is about to befall the business world with scenes of the 1920s Great Depression showing behind him.
He’s not alone. The press is universally similar in tone; all are equally determined to undermine consumer confidence and if or when we do enter a recession then they’ll wonder how.
But the problems don’t lie solely at the hands of the media. The way crises are dealt with at the outset of a problem (before confidence drops and panic spreads) is absolutely crucial.
Take Northern Rock.
It was always an accident waiting to happen but when disaster struck the bank the financial sector’s “emergency services” that comprised of the Bank of England, FSA and HM Treasury stood around and scratched their heads.
Lloyds TSB came in with an offer within days of the ‘patient coughing up blood’ and tabled a rescue plan. The three wise men did nothing.
Instead they entered into a game of chance and started a beauty parade of interested parties whilst Northern Rock slipped closer to the edge.
Whilst the “powers that be” dithered, customers started withdrawing their money at an alarming rate and suddenly panic soared and confidence slumped as a hungry media bit hard on the wounded.
When a bank loses the trust of its customers, it is dead. And Northern Rock died.
With the likes of Virgin and the private equity boys trying their best to resuscitate the Rock our ditherers eventually plumped for the plan that nobody wanted. Not Northern Rock, not the government and especially not the tax payer.The British nation is increasingly cynical about government so think about it. If the population doesn’t trust the government, it won’t trust the bank.
I’ll say it again. When a bank loses the trust of its customers, it is dead.
Bear Stearns is the US Northern Rock.
It has become increasingly clear that the risk-embracing investment banks of the US were heading for a fall and Bear Stearns is the first high profile victim.
But in this case there was a big difference; the Fed ‘rescued’ the ill patient in 48 hours and over a weekend. Before the weekend was up, JP Morgan had acquired the firm for $236 million.
Unlike our ditherers, the Fed had seen the bigger picture. They didn’t become a victim of nostalgia over the 85 year old firm’s history.
It might not be enough but at least it has arrested the rapid decline and staved off the panic mongers at the pass.
From a leadership perspective, doing nothing is never an option. When a problem arises move decisively towards it. Strong, decisive action is the only way problems can be resolved and if we do nothing about managing the affects of the US credit crunch and dwindling consumer confidence then we will talk ourselves into a recession.
2 comments:
Rene,
What is your take on the increasingly bitter consumer downturn that appears to be afflicting the retail sector in the UK? More hype or simply poor businesses making poor result statements.
Agree with you in the most part about media hype by the way.....
Chris
A good question Chris and one I’m asked a lot on the speaking circuit.
The short answer is that there is something wrong with high street retail at the moment.
Let’s remember that the two factors that influence high street performance the most are confidence and choice.
In our consumerist society the more flush we feel, the more we go shopping. And the last 10 years have been all about spending money.
All of a sudden the media are telling us that things aren’t great and people are rightly becoming circumspect. In addition, “staple” products like petrol, gas, electricity, sugar, bread and milk have all seen steep rises recently. These are the things we HAVE to buy and as a result are seen as economic indicators.
Again the signs all point to things not being great at the moment.
When confidence is low, it is the “big ticket” items that don’t sell; refrigerators, sofas, freezers, appliances and the like. People can live with what they have got already and these items rarely need replacing.
But it is the performance of these goods on the high street at the moment that is, in fact, the most telling. Over the Christmas period 15% of retail sales were conducted online, which proved to be a very difficult downturn to swallow for high street retailers.
There are now a plethora of online price comparison sites that have no overheads, no staff and ship the goods direct. For many that want to buy a new television or fridge, they no longer go down the road to buy one and instead find it cheaper online.
That has left the high street retailer stranded with low consumer confidence and an invisible enemy that is undercutting their prices.
This morning Kingfisher announced a 15.6% profits fall for the first three months to April 30th. With the likes of B&Q in their armoury, they represent the type of trading that is suffering from more choice online and goods that can be lived without in times of need.
The trouble lies in the fact that many retailers haven’t understood the rules of engagement in the online marketplace. On the web shoppers are a lot more savvy than they originally thought; it is not enough to put an online store up and catch passing trade.
It is now obvious that your brand on the high street should not necessarily match your brand online.
Take M&S. On the high street they stand for quality, service, value. They are a great place to shop with great people to serve you. Online the people and the shop count for nothing; they need something else to stand out.
The retail offering in the UK high street HAS to become more sophisticated and understand the online customer more if it is to remain competitive and ride the current economic tightening.
And at the moment, we’re not quite there.
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