Bill On Business

UK Consumer spending crisis favour Online Retailers in the long term.

For close observers, the 42 inch Plasma Screen was an early indicator of a imminent UK recession. As mountains of perfect tv’s piled up on Craigslist and recycling depots anyone could guess a recession was coming because UK consumer spending had become wanton and unsustainable. Employees earning 30,000GBP were spending 3.5% of their gross wage on a screen with lower quality than a tube based TV. We had seen the emergence of a nation that have become obsessed by what they wanted, deserved and would pay for later.

The current recession will reformat the UK high street and place online retailers in a stronger position than before as offline retailers are forced to close stores and reduce the range of products offered to focus on strong selling lines. That’s good for people like me, who make their money from online business. So while online retailers are also being hit, they will emerge from the recession stronger compared to the trimmed down high streets offering less choice at higher prices.

Of course much of what us happening is inevitable, over the last 20 years most towns have lost their individuality as mid size chains place identical stores in every town centre. The ability to rapidly expand stores was fuelled by UK joe average racking up the highest personal debt in Europe or North America.

The UK’s mountain of personal debt, driven by a common perception that credit cards would be paid off by huge increases in property prices has hit many consumers hard in even basic areas. Even those without a property spent to excess, driving their obsession to “get on the property ladder”, because once on the property ladder, this mystical money making machine would double the price of any property in 5 years and pay for all those credit facilitated excesses, holidays and consumer electronics. The race to own a property served to increase house prices even more radically, ironically driving fear based “must buy now” decisions and making the return on investment appear even more attractive. Obviously this was a national level pyramid scheme that everyone from banks to poorly paid first jobbers fell for.

I’ve lost count of the people I know who’ve proudly announced their house purchases as a testament to their success but omitted to mention the sizable investment by a parent or the inheritance from a grand parent who lived wisely for 50 years only to hand over their estate to purchase a (interest only) flat in Croydon that cost 50% less ten years earlier. The problem is that people have started to live of money they neither earned, deserved or could sustain.

When Citibank closed 100,000 Egg credit card accounts in February, statistics suggest that around 10% of those cards were being used to pay for consumer staples such as the weekly grocery shop and commuting costs. Overnight 10,000 people lost their ability to buy the next travelcard or loaf of bread, or were forced to move to another credit card. It is no coincidence that bread and tea manufacturers saw increases in sales in January, as people cut back on Starbucks and Pret A Manger sandwiches. Likewise, budget supermarkets LIDL and ALDI have seen double digit increases in sales.

The British public is getting what it deserves after a decade of excess. Price sensitivity diminished in the 1990’s and since 2000 there has been little check on prices. Compared to the huge increases in house prices, an overpriced 4.50GBP sandwich or 3.30GBP coffee became overlooked. People I know who earn a quarter of my salary spent like they earned four times my salary, and I’m not a careful economist.

Overall what we have seen is a service based economy, with much less industrial diversity than the US or many of it’s European neighbours spend itself into a hole.

If we take the business definition of insolvent (bankrupt) as “someone who has insufficient assets to cover their debts when those debts fall due” then a growing section of UK society is insolvent, avoiding financial ruin through a series or debt restructuring and new borrowing. Now that borrowing options are becoming increasingly constrained, we should see interesting times ahead. I feel a debt restructuring website project in the pipeline!