Perry Como could have been warbling these lines since October on my high street; but forget tinsel, nowadays it’s not really Christmas until the discount signs are up in shop windows. This year, retailers changed the dynamics of their annual game of ‘chicken’ with consumers by embracing the US concept of ‘Black Friday’. This appeared to kick start festive spending in late November, after a slow start to the quarter, with consumers coming out in force – too much force in some cases. However, the return of heavy discounting in recent weeks suggests retailers needed to do more to lure shoppers back again.
Which might sound like round one to the consumer, but it’s never that simple. Consumers will always find money to spend at Christmas, even in hard times. The question is always where they will spend it and how hard retailers will need to discount to capture it. Retailers with strong brands and online propositions, and those in the sweet spot of value and service, are less likely to feature in discount wars and should fare well. Others look set to struggle in a brutal fight for market share.
Five hard years have toughened the high street. In 2013, most retail administrations have been due to outdated business models or the need for stronger medicine after previous, milder restructurings. However, they’re a reminder of the need for retailers stay on their toes and constantly renew their business models in a period of rapid change.
Coming out of the bleak mid-winter in M&A
More figures out this week – this time from the Office of National Statistics – telling us that M&A volumes were still flat in Q3 2013. The total number of domestic and cross border deals involving UK companies during was 116, the same as the previous quarter and just a small increase on the same quarter of 2012. This lack of activity appears to defy all logic. An increasingly confident UK plc is supposedly sitting on an enormous cash pile, with access to cheap finance, whilst generating organic growth well below pre-crisis levels.
However, it takes time, especially after previous false dawns, for companies to translate confidence in the market into confidence in their own outlook and to build up a pipeline again. The message we hear from business leaders and CDOs is that this is happening now. Meanwhile, one area of UK M&A has certainly picked up. UK takeovers by foreign companies increased by 39% in Q3 2013 compared to the previous quarter. UK companies with strong brands and a ‘safe’ footprint in Europe are proving increasingly attractive to foreign buyers.
Autumn statement offers few gifts
The UK economy is also looking like an attractive location for potential buyers. Last week, the Office of Budget Responsibility upped its growth forecasts ahead of the Chancellor’s Autumn Statement, with the OBR now predicting 2.4% growth in 2014, up from 1.8% expected in March. However, as forecast, by the EY ITEM Club, there were no major giveaways. Chancellor’s plans remain fiscally neutral over the longer term. The UK recovery is underway, but there’s still plenty of work to do. The predicted fall in borrowing is due to cyclical, rather than underlying improvements. This means austerity is here to stay – spending cuts will pick up after 2016.