New look is a British global fashion retailer which was founded in 1969. They have a chain of high street shops in Britain and trade in-store and online. New look now have over 1,000 stores worldwide, in the UK and Republic of Ireland, Europe, the Middle East, Singapore, Russia and Poland.
This news feature is for the chamber of commerce and will be looking at how changing economic environment has affected New Look Retail Store. Over a period of time, there are changes in the level of economic activity in an economy. In some years economic growth might be quite slow and in other years growth rates tend to be stronger. There is a tendency for patterns of economic growth to occur. This is called the Business Cycle.
Gross Domestic Product
GDP is a Value of a country’s overall output of goods and services (typically during one fiscal year) at market prices, excluding net income from abroad. GDP can be estimated in three ways which, in theory, should yield identical figures. They are (1) Expenditure basis: how much money was spent, (2) Output basis: how many goods and services were sold, and (3) Income basis: how much income (profit) was earned. These estimates, published quarterly, are constantly revised to approach greater accuracy.
The United Kingdom is among the world’s most developed economies. Services, particularly banking, insurance, and business services, account by far for the largest proportion of GDP while industry continues to decline in importance. Over the past two decades the government has greatly reduced public ownership and contained the growth of social welfare programs. The graph above shows UK Gross Domestic Product decreased by 0.5 per cent in the fourth quarter of 2010, compared with an increase of 0.7 per cent in the previous quarter.
The GDP estimate was significantly affected by the bad weather in December; as customers and
Suppliers could not get around supplying goods and services the GDP dropped. On the New look website it states that in 2007 0.7million growth sales was generated. This was also a good year for New Look in sales because in 2007 designer ranges launched in conjunction with Giles Deacon and Lilly Allen which is world’s most favourite designers, New look also became Number one in volume for woman’s footwear. During the year to 2008 the GDP was dropping dramatically, in 2008 the GDP was 0.3% showing a 0.7% decrease. For New Look the change in the GDP didn’t seem to affect them as third party distribution centres in Singapore and Istanbul opened up. This is maybe because New Look thought trading in other countries will bring them more money rather than just trading in the UK when the recession was about to start.
In 2009 the GDP dropped dramatically to -2 this shows that in 2009 the UK was going through a financial crisis. New look opened 4 non-UK stores in 2009 which were in Netherlands, Egypt, Bath and Singapore. Again this shows that New Look decided to open up other stores outside Britain to trade as the country is facing a financial downfall. In 2010 the GDP was 0.4% and throughout 2010 to 2011 the GDP increased to 1.2% which shows recovery was being made from the recession. In 2010 New Look opened a flagship store in West end which is in the centre of London. This tells us that because the GDP increased and substantial rises were being made New Look decided to open up a store in the UK again as recovery was being made in financial matters. In 2011 the GDP was respectively low 0.5% this can be because of the terrible weather at the beginning of the year were no one could commute to work so no sales or trading were being made. New Look have no updates on this but I assume poor sales were made at the beginning of the year because of this.
Inflation is a general increase in prices for goods and services in an economy. The government uses a number of measures to monitor levels of inflation. The most frequently used is CPI. The CPI measures inflation by assessing the price of buying a range of goods and services. The price is compared with the price of buying the same goods and services at the same time the previous year. The difference is the effect of inflation.
The graph above shows the inflation rate in United Kingdom. The inflation rate was last reported at 3.70 percent in December of 2010 up from 3.3% in November. From 1989 until 2010, the average inflation rate in United Kingdom was 2.72 percent reaching an historical high of 8.50 percent in April of 1991 and a record low of 0.50 percent in May of 2000. Air transport and rising petrol, diesel, gas and food prices are the most significant drivers to the increase in annual inflation between November and December which statistics show. In 2008 New Look made £206million at the end of 2010-2011 New look generated £224.3million which is an 18.3million increase. The increase in prices and goods helped New Look as they gained more money in this process rather than the disadvantage of prices increasing making it harder for consumers to buy the products so demand falls. However New Look costs may also rise further as workers may demand wage rises to compensate for rising shop prices.
Unemployment and Employment Rate
Employment rates are often regarded as an indicator of economic events. However, they are not generally very useful in predicting trends. The first graph above taken from the national statistics website shows part time employment, full time employment and total employment between 2008-2010. It also shows us the affect it had when we were in recession and when we developed a recovery. Between quarter three 2009 to quarter three 2010, total employment rose by 1.0 per cent (286,000). This was driven by part-time and temporary workers. In New Look’s case there would be saving money as they are not giving employees the same benefits they would give to a permanent staff. The national statistics site state that Part-time jobs grew by 4.2 per cent (320,000) in 2008- 2009 and Full-time jobs fell by 0.2 per cent (34,000). From working in New Look for 2 years I’ve noticed that there are more part time workers than fulltime workers this is because New Look saves money for giving people 4 Hour shifts spread across different days so they do not have to give the employee an unpaid break.
For example; if I was to work 6 hours, by signed contract New Look would need to give me an unpaid 20minute break. They try to avoid paying people for doing nothing so they split employee’s shifts up therefore saving on money. The first graph above also shows that it is not until growth has been happening for a little while that firms have the confidence to take on new employees. The second graph above shows that the employment rate for those aged from 16 to 64 for the three months to November 2010 was 70.4 per cent, down 0.3 on the quarter.
The number of people in employment aged 16 and over fell by 69,000 on the quarter to reach 29.09 million. The last time there were larger quarterly falls in the employment level and rate was in the three months to August 2009. The number of people working full-time fell by 37,000 on the quarter to reach 21.16 million and the number of people working part-time fell by 32,000 to reach 7.93 million. The number of employees and self-employed people who were working part-time because they could not find a full-time job increased by 26,000 on the quarter to reach 1.16 million, the highest figure since comparable records began in 1992. Consequently, although employment levels do change during the business cycle they are of little predictive value.
Trade surpluses/deficits and the balance of payments
Trade Surpluses is a situation where goods are sold more abroad than bought. If the value of imports exceeds the value of exports money is leaving the country this is known as a trade deficit situation. The balance of payments is basically an account showing the difference between the total exports and the total imports for a country. Exports are goods we sell abroad; Imports are those we buy from abroad. The last updated figure was in November 2010 and was £4.6 billion. The UK’s deficit on trade in goods widened by £14.8 billion to £97.2 billion in 2010 and in 2009 it was only £82.4 billion. Total exports rose by 16.9 per cent, and total imports rose by 17.2 per cent. The United Kingdom’s exports manufactured items like telecommunications equipment, automobiles, automatic data processing equipment, medicinal and pharmaceutical products and aircraft. Its main trading partners are European Union countries, The United States, China and Japan. . The statistics and graph could have had an effect on New Look in the sense that New Look was also able to trade more in their international stores as well concluding in more sales being made. This is also an indication that a recovery was being made.
How Economic Environment Affect New Look
New Look is a British global fashion retailer with a chain of high street shops in Britain, Belgium, France, The Netherlands, Republic of Ireland, Malta, Singapore and the United Arab Emirates. New Look was founded in 1969 in Weymouth, Dorset by Tom Singh. Since then the company has rapidly expanded and now operates across a chain of over 1,000 stores internationally and a staff of over 30,000. The group had a turn over of £1,147 billion in 2008 with profits of £179 million.
I have carried out a PEST analysis to investigate the important factors that are changing within the business due to the economic environment. A PEST analysis will be easier to look at for me.
P- Political Changes: I will be analysing the change in UK government or a change in government policy and how it might have affected New Look. Political changes relate to changes in government influence. In recent years these changes have been particularly significant because as members of the European Union we have to adopt directives and regulations created by the EU which then become part of UK law. Political changes are closely tied up with legal changes.
I believe the coalition government are running the country very well indeed. The economic crisis which has wounded the economy has built up a large debt and so cuts have had to been made, therefore I can understand why the rise in tuition fees and other events have happened. It’s really the only way to solve the problem. People are blaming labour; it could not have possibly been their fault because the recession was bigger than just the UK. I believe that really, the only difference between what Labour would do and what the current government would do is that Labour would make cuts that are less drastic. The process of getting rid of the debt would be slower but friendlier to working class people. Either way you look at it there is a debt and it has to go somehow.
The coalition government have also done something which I believe no other government have done before; they have made a record of all of the things the government have spent money on and made it available to the public so that we can see clearly what’s going on.
The recent crises in Ireland and our government’s actions have understandably frustrated a lot of people in the UK. The government makes massive spending cuts across the country yet can still afford to donate billions to Ireland. I admit, it doesn’t sound fair. However, I have looked into this and I understand that this is highly necessary and we would be worse off if we didn’t help them. This is because we sell a lot of stuff to Ireland for example- If people have no money in Ireland as well as other countries they will no longer buy our British based stuff this will result in New Look losing out on a lot of money and people will begin to lose their jobs. By helping out Ireland and other countries we are kick-starting their economy again and they will continue to buy British made goods which will then fuel our economy and help us out. Not only is this for Ireland but for other countries as well. As for New Look I cannot forecast what the economic environment will be like for them in the future as there is also some sort of political change, However if the economy carry on this way I don’t think New Look as a company can survive the slump. New Look is an international company so they would have to trade and focus overseas.
E- Economic changes: I will be analysing how New Look Relate to changes in the wider economy such as rises in living standards or the general level of demand, rises or falls in Interest rates, etc. Economic changes are closely related to social ones. The economy goes through a series of fluctuations associated with general booms and slumps in economic activity. In a boom nearly all businesses benefit and in a slump most lose out. Other economic changes that affect business include changes in the interest rate, wage rates, and the rate of inflation (i.e. general level of increase in prices).
Businesses will be more encouraged to expand and take risks when economic conditions are right, e.g. low interest rates and rising demand. In times of economic prosperity, retail sales skyrocket so New Look will be making a large sum of money however in times of recession, money is distributed in a more cautious manner, negatively affecting retail sales. This is because when people are affected by recession they will not feel like shopping. The interest rate is currently 0.5% the way this affects New Look is that Interest rates remove some of the profits that are made in the businesses that make loans to operate so the higher the rates the lower the economic activity.
This is bad because New Look have the right to lower wages which will lead people in to leaving the job and will cause unemployment. Once again if economic activity is not always active New Look could go bust in the future. Government spending also has a big affect on New Look. Local council spending is crucial to many businesses, Increases in council budgets and increased council spending leads to New Look having increased business opportunities. However cutbacks in local council spending could be very bad news for New Look. For example, the Local government usually carry out road maintenance and traffic management. If there was a problem with this factor outside a New Look store, customers may not be able to get into the store and the business may not be able to pay for it; therefore target sales will decrease and eventually leading the store to close down.
Another economic change is V.A.T, V.A.T. is value added tax it is a percentage of a shops weekly earnings that is taken by the government, it causes the prices in shops to be higher and decreases the shops net income. Recently the V.A.T went up from 17.5% to 20%, This will not only affect businesses, it affected households as well, expect your food cost to go up, clothing’s, household items etc. It’s a pity that while all these things are increasing in price, many people’s income will remain stagnant and thereby some will have no choice but to either find a second job or extra income to survive and some may not be lucky and will have no choice but to declare themselves bankrupt.
For businesses that are VAT registered like New Look, they charge their customers VAT on goods and services, surely the 20% will make their goods and service more expensive and their customers may try and find ways to avoid paying this to them even though New Look don’t get to keep the VAT money. The ways in which tax laws may affect New Look is that the company tax rate is 30%, that’s almost 1 third of the income going straight to the government, that is a lot of money going out to the government. Another way tax could affect New Look is that any new laws that the government could imply could affect the way a company is taxed, adding uncertainty in dealings. If New Look were to be un sure about it they could end up with a massive tax debt.
S- Social changes & T- Technological changes: I will be analysing how New Look Relate to changes in wider society such as changes in lifestyles and how they relate to the application of new inventions and ideas such as the development of the internet and websites as business tools. A major social change has been that many people are working from home today using home computers to buy online and shop without having to go in store. This has led to a reduction in demand for less staff operating in store which means fewer jobs.
Even though New Look will still receive profit, unemployment statistics will rise and an increase in benefits will be given out for example; job seekers allowance. If society continues this way, New Look may not even be making money in store anymore which will lead to them closing down and just operating online. New inventions like the Iphone and Ipad have applications were Retail stores can upload latest fashion and you can shop and browse right off your phone. This is a benefit to customers as it is easier for them to access rather than going in-store. Again, this type of intervention can result to job losses to the people who are actually working in-store. Employees will have no reason to come in to work as there would be no one to do customer service for. As for the economic environment now New Look are dealing with it affectively, however if society continues to change New Look will come out of business.