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Impact of "Le Crunch"

As Olympic gold medals become a distant memory, it's the gloom merchants who appear in the ascendant

At the end of August Ken Rogoff, the former chief economist at the International Monetary Fund, increased market jitters by warning that the worst of the crisis is yet to come. Financial market traders, meanwhile, readied for the impact of weakening growth in Europe, North America and Asia on western banks.

So what have we noticed at the sharp end? Apart from having to tighten our belts in the face of spiralling food and fuel prices, and a flattening housing market? And how do we feel when it's not even ­ technically - a recession?

Still, if it walks like a recession and talks like a recession, maybe it is a recession. What's interesting is that the squeeze is having an impact across the board. Chester, for instance, is a vibrant city with a prestigious shopping centre right in its heart. Yet surprising numbers of very big shops have been closing down and moving out. Part of the problem, says Gary Davies, professor of corporate reputation at Manchester Business School, is that "property owners think that they can continue to demand very high increases in occupancy costs ­ and they can't. There's a limit.

"But the other part of the problem is that occupancy costs are now squeezing margins so badly that retailers are looking at the profitability of some of their outlets and rationalising them. They're literally taking 50 to 100 branches out of a chain where those branches are not yielding a positive cashflow."

Economic insulation

What this does to customer loyalty is another story, but it's indicative of the mentality of a generation raised to believe that profits should only go one way: up. There is a dichotomy here, however. The wealthy may be economically insulated, but it's not just income that determines spending patterns.

"In some cases we're seeing a move from conspicuous consumption to considered consumption: spending the same amounts, but less frequently," says James Lawson, a director of Ledbury Research, which specialises in helping brands understand and reach the wealthy.

"We have already seen the priorities of spend shifting from the more overt to the more personal, from status symbols such as autos, watches and large logos to more experiential consumption and an increasing spend on health. Could it be that the motivations for this shift are being compounded by a decline in enthusiasm for self-indulgent spending linked to the economic downturn?"

He cites press coverage of the wealthy cutting back on luxury spending, not because they can't afford it, but because they feel it is wrong when others are feeling the pinch. "While we believe the economic downturn is most likely to affect the more aspirational consumer, the core luxury consumer may also be cutting back due to market sentiment," he says.

So what is going to make companies healthier coming out of a recession than going in? If consumers at both ends of the spectrum feel the need to cut back, will that impact on the type of companies they buy stuff from on a regular basis?

Business in the Community is a unique movement in the UK which seeks to inspire, support and challenge business to improve continually its impact in the community, environment, marketplace and workplace. Its managing director, Stephen Howard, is confident that more firms will look to CSR as a marketable USP.

Key to differentiation

"In certain sectors, especially financial services and construction, companies are feeling the adverse effects of the credit crunch and we are looking to support them in any way that we can," he says. "The companies that have integrated the principles of responsible business may even have an advantage in this climate. Our research shows that 80% of European business leaders believe that responsible business practice allowed companies to invigorate creativity and learn about the marketplace, helping companies to differentiate from competitors and thrive in times of economic difficulty."

If ever there was a time for business to test this theory out, it's now. Will we, for instance, abandon the likes of Primark because of TV exposés, or will our love of a bargain make us stay loyal? Will the perceived squeeze that major grocery chains put on suppliers make us abandon the weekly supermarket shop or will the higher prices of independent retailers force us to come running back?

We're starting to move into unknown territory here, because even out of town shopping malls ­ despite the free parking and easy accessibility ­ are starting to suffer. The problem here is fuel prices. And if the statistics are to be believed, one of the things that we're cutting back on is domestic travel.

Top leisure activity

There is some debate as to what is the number one leisure activity in this country. Some say it's fishing, others that it's shopping. Well, if it's the latter then it's only common sense to predict that it's likely to take a big hit. The numbers who are prepared to shell out on driving to a mall where the only thing they can afford to do is window shop are bound to fall.

Gary Davies, who is also a retail expert, reckons there's going to be a bit of a shake out of the sector over the next three to four years. "Electricals look vulnerable, as does fashion, and we could even start to see the dog sniffing round some of the food retailers," he says.

The jury's out as to whether internet shopping can ever take the place of a good old fashioned high street browse. For my part, I haven't recovered from Oxfam revamping selected stores and going upmarket. Maybe it's back to the jumble sales.

 

Louella Miles
Copyright © Association for Qualitative Research, 2008