UK retailers and manufacturers
Discuss the impact of recent changes in the UK economic environment on UK retailers and manufacturers All businesses are affected by changes in the economic environment and these can be divided into two groups, those operating within that business sector eg the car industry and the changes in the economy as a whole eg interest rates.
For the retail sector the recent downturn in the economy has affected some sectors more than others. BMW, the world’s largest manufacturer of luxury cars is on course to meet its target of selling 1.8 million cars in 2012. Sales of the Mini, BMW, and Rolls Royce which are all made in Germany are expected to continue to grow despite the tough economic market. The CE of BMW feels that in a recession it is the mass market manufacturers that are most affected by rising costs in raw goods and exchange rates and that companies trading in luxury goods seem to be the last sector to be affected. This does make sense because if people are working on tight margins and budgets then any rise will have an impact on whether they buy the goods but, if people can afford the high end goods then a price increase may not be enough to prevent them buying.
However BMW are concerned about the wider economy, for example, the large fall in the US exchange rate because this makes exports from Germany more expensive and the US is a major market for premium cars. Also the car industry is dependent on raw goods, steel and other components which are affected by worldwide prices and exchange rates. These markets can fluctuate overnight so manufacturers of raw goods can be most affected.
The recent credit crunch and the problems within the banking industry generally will have had a huge impact on all sectors but, particularly retail. People have found it harder to get credit and loans because the banks are unwilling to lend to high risk people so this means sales have fallen in all areas of retail. The housing industry has reported a slow down in first time buyers who are struggling to get a first mortgage and second time buyers are not increasing their debt. The banks have had to write off a lot of bad debt so they are unwilling to take too many risks with customers, particularly in difficult economic times. The banking crisis escalated in America with a lot of bad debt but quickly spread to other countries like Ireland, Spain, Greece and the UK showing that banking is a global market but when things go wrong, it can affect all sectors.
In retail businesses rely on consumers to make money and when people have not got the money to spend on shopping etc. the retail businesses will suffer. Businesses that sell to other businesses will not have to rely on consumers to buy there products. The retail market was hit very hard by the recession as shoppers were forced to limit their spending and consumer confidence was shaken by the collapse of retail giants. The state of the economy can be measured in many ways by looking at a range of factors. These factors are gross domestic product, economic growth, the rate of inflation, interest rates, unemployment and exchange rates. However some industries can be more affected by one of these factors eg exchange rates for manufacturers and the retail industry can be affected by high and sudden unemployment.
GDP is the national income in a year. It is usually adjusted for inflation and takes into account our actual income. When our GDP is rising in real terms this is good news for retailers because people have more money to spend on goods. In a period where there is rapid growth this can be described as a boom where there is a high demand for goods and rising profits but, this can lead to rising inflation with a high demand for goods and services which increase wages and makes companies less competitive. Some of the arguments about moving manufacturing from this county abroad have been around the high wage costs here and the raw materials which make the goods less competitive.