One loan to save them all?

The government’s recent colossal capital injection into the UK’s banks is obviously a good thing for all those with a vested interest in the banks. Increasing liquidity in inter-bank lending is one piece of the puzzle needed to start fixing the unquestionably broken face of business and finance in the UK. And, while it won’t fix things overnight, signs are positive that this element of the financial industry will recover in time. In October the Associated Press announced that interbank lending rates between banks in the U.S. and Europe have dropped to the lowest levels in over a month, a positive sign indeed. 

But it’s not ‘all over’ by a long stretch. Parts of UK industry are already suffering and will continue to feel the effects for years to come. Retail, for one, is in dangerous territory and it’s only going to get worse. 

Firstly the retail industry is heavily tied into the ability to attain capital when needed. Investing in new stores, new products, R&D etc all cost money and this doesn’t always come from capital. Secondly, retailers need to consider what effect the credit crunch is having on consumers – both financially and mentally. We all know consumers are being crushed by rising prices, crazy utility bills and ever unwelcome council tax. These are having a massive tangible impact on consumer spending – a quick search through the national retail press will confirm any doubts. 

But these are all initial problems, the mental side of the crisis could have much further reaching impacts and could bring thousands of retailers to their knees if not finish them off altogether. The problem is that this whole very public and very worrying collapse has scared the hell out of consumers. They simply aren’t going to spend as much as they did before and, even if things do pick up, it’ll be years before they go back to their old ways – if they ever do. 

The consequences will be dire and 100s of retailers will be at risk before we come out of the other side. 

A likely knock-on effect of this will be the way retailers react in terms of marketing. They are likely to find that traditional big-impact ads simply bounce-off at a time like this and will continue slashing ad revenues left right and centre. There will then be an increasing move towards customer loyalty and retention over driving new footfall with retailers looking at loyalty programmes and customer incentives so save their skins (think mobile phone industry). 

It would be great to have bucked the trend and pretended it’s all going to be ok, but the fact is: it’s not. Things will have to get worse before they get better and it will be a rough ride for retailers. Those who don’t act now to save themselves could soon find that their fates are no longer in their hands…