The current landscape & it’s impact…
Throughout the pandemic we’ve kept you up to date with changing legislation, as well as the impact Covid has had on the wider economy. There has been a flurry of statistics recently that give us more detail around the situation in which we’re all working.
Office of National Statistics (ONS) reports price rises.
The ONS has reported prices of materials, good and services increased faster that usual in October 2021.
Nearly two fifths (37%) of businesses reported the prices of materials, goods and services purchased last month had increased more than their normal prices fluctuations. This has increased from 21% in late May 2021 and 15% in late December 2020.
The ONS reports the industries hardest hit as construction (67% of businesses) and manufacturing (66% of businesses).
Some of these prices are being passed on to consumers, with 15% of businesses reporting they had increased the price of goods and services they sold in October, up from 11% in September 2021 and 4% in December 2020.
Retail had the highest proportion of businesses (29%) that reported an increase in prices of materials, goods and services sold, followed by the manufacturing industry (28%) and the construction industry (24%).
The recent rise in prices has contributed to rising inflation which was reported as 3.1% in September 2021.
Economy grows by 0.6% – September 2021
The ONS has also reported Gross Domestic Product (GDP) is estimated to have grown by 0.6% in September 2021. This is despite August’s growth being just 0.1%, and supports the view that post-pandemic economic recovery is ongoing. GDP is however still 0.6% below the pre-pandemic level.
These figures were despite reducing consumer confidence, the fuel crisis, staff and supply shortages, and retail and wholesale trade falling by 13%. Will they continue to go in the right direction? Feedback from clients on what they’re seeing is very mixed at the moment, so we’re not sure.
Online sales fall by 11.2% in the year to October 2021
Technology company Capgemini has reported online retail sales fell markedly, despite expectations of early Christmas spending.
The IMRG Capgemini Online Retail Index tracks the online sales performance of over 200 retailers. It found the following:
- Alcohol and clothing retailers were the only online suppliers who saw growth in sales during October 2021 compared to September.
- Beers, wines and spirits were up 2.2% compared to September, while clothing sales were up 7.5%.
- For only the second time since December 2019, garden sales have declined (by 7.5%), while health and beauty remains the worst hit category, showing a 23.3% reduction in sales.
Lucy Gibbs, retail lead for analytics and AI at Capgemini, said ‘October online spending was more subdued than expected this year. Stock shortages and supply chain disruptions gave speculation that customers might start shopping earlier than usual, however this may also be having a negative effect.’
Andy Mulcahy, strategy and insight director at IMRG, said ‘The potential for Christmas shopping to get underway early this year did not really materialise in October, but it is evident that retailers are certainly trying to get it moving in early November.’
IFS predicts millions to be worse off next year
The Institute for Fiscal Studies (IFS) has predicted that millions of people will be worse off in 2022 as a result of spiralling costs and tax rises.
Responding to the Autumn Budget, the IFS predicted that low-income families will be squeezed by a rise in the cost of living. The Office for Budget Responsibility (OBR) recently warned that the cost of living is set to rise at its fastest rate in 30 years.
The IFS stated changes to income tax and National Insurance, alongside rising household bills, will mean slow growth in living standards.
Paul Johnson, Director of the IFS, said ‘With, in the words of the OBR, inflation quite possibly hitting its ‘highest rate in the UK for three decades’, millions will be worse off in the short term. Next April benefits will rise by just over 3%, but inflation could easily be at 5%. That will be a real, if temporary, hit of hundreds of pounds a year for many benefit recipients.’
‘We are not at 1970s levels of inflation, but we are now experiencing enough inflation that real pain will be felt as low income households – most of whom have next to nothing in the way of financial assets – wait more than a year for their incomes to catch up. For some in work that may never happen.’
So what’s really going on out there?
Feedback from our clients suggests that consumers are starting to prepare for the festive season, but are wary of spending. Service businesses are seeing decisions taking longer in some industries, while others are enjoying a surge of activity, with revenue back to the heady days before Covid hit.
It’s a real mixed bag!
While we include these statistics in our round-ups for clients, it’s important to take a realistic view of them. They’re based, in the main, on specific sectors, or relatively small groups of retailers. The most important message from them is that we remain in a volatile economy, and should act accordingly.
How should businesses respond?
There are various actions that you can take, but they depend in the main on what is happening in your own business. Here are a few more general suggestions:
1 Be aware of your own performance.
Make sure you track the numbers in your business closely and know how your cash is holding up. Look for the gaps that may be coming in your cashflow, and be ready to address those in good time. If at all possible, continue to fill your war-chest of cash. Those businesses that had reserves as we went in to the pandemic are the ones that have come out of it in the strongest position.
It’s never too late to improve your reserves!
2 Any seasonality that you’ve been used to in your business is unlikely to be reliable this year!
If you usually benefit from increased income in the run-up to Christmas to carry you through the start of next year, make sure you’re watching to see if it happens, and have a plan to work to if it doesn’t.
Conversely, how will you manage if your usual quiet time in December doesn’t happen? Do you have the resources to carry you through? Extra staff and supplies may be harder than usual to find.
One client of ours already has contracts in place that will give him sales figures for December that he’d previously only have dreamt of. Thankfully he’s been aware enough to see it coming and is set up to take advantage of the extra activity.
3 Continue to look for opportunities to pivot if you don’t see the activity you need.
There are still benefits to be had from enhancing online sales, and making it as easy as possible for your customers to buy from you. Covid case numbers are still high, and there is a risk of some level of restrictions being imposed as the winter progresses.
How will you respond to that if it happens? Can you easily switch back to working from home if necessary?
4 It’s easy to watch the statistics, but you need to act on them too.
Devise a variety of plans, and make sure you know what will trigger each one. Have a good idea of what the actions are for each, who will carry out the actions needed, and how they will be financed.
If you’d like help with any of the above, or in looking at the specific actions that could improve the resilience or performance of your business, do get in touch. We can support at whatever level you need, whether that’s helping you sense-check plans you already have, or help you work out which numbers you’d be best to watch for your business.
We send regular updates that keep clients aware of changes and suggestions on a wide range of subjects; if you’d like to receive those too, just add your details below and we’ll do the rest! We promise not to bombard you and you can unsubscribe at any time.