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Retail Bulletin - July 2016

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Retail and the Price of Oil

The remarkable decline in the price of oil has had a huge impact on aspects of the global economy, ranging from manufacturing and transport costs to the price we pay for our food. Despite discussions among OPEC members about addressing price levels, the price is still more than 50 per cent below where it was in June 2014. Downward pressure is coming from Saudi Aramco’s announcement of a pending increase in oil production and Iran’s re-entry into the market.

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Eurozone Retail in Flux

Following a promising start to 2016’s eurozone sales figures, growth is now slowing and economists were expressing concern – before the Brexit vote results – about the effect on an already choppy global economy.

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The Rise of Psychographics over Demographics?

Knowing your customer is perhaps the most crucial step to securing their custom, and for this purpose the traditional approach has been demographic analysis. Technology, however, has opened the door to another kind of insight: psychographics.

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Inquiry into the collapse of BHS lays blame at the door of Sir Philip Green

Sir Philip Green has been held responsible by MPs conducting an inquiry into the collapse of BHS. The retail outfit was sold by the Arcadia boss last year for £1, to Retail Acquisitions, led by Dominic Chappell. It has come to light, through evidence given at this inquiry, that prior to this sale the Green family, led by Sir Philip, systematically stripped BHS of cash through various deals and restructures. This left the retailer in a precarious state which Dominic Chappell was unable to rectify, at the cost of 11,000 jobs and 20,000 people's pensions.

As the inquiry delved deeper into the debacle, it was uncovered that the corporate governance at Taveta (which was the holding company of BHS at the time of its ownership by Sir Philip) should be severely criticised; in particular, the role of advisers at the company. This led to a lack of review or challenge within the corporate group, allowing Sir Philip to remain the sole individual in charge of key decision making.

Iain Wright, Chair of the Business, Innovation and Skills Committee said: "While BHS staff face uncertain job prospects and pensioners worry about their future entitlements, it's clear that a large cast of directors, advisers, and hangers-on enriched themselves off the back off BHS."

In a comparable situation to the recent inquiry into working practices at Sports Direct, this investigation will likely hold wider implications for retailers, particularly those that are privately held.

The report suggests that broader consideration is required of the "framework in which companies operate", but that this should be done from a "pro-capitalist perspective". Due to the nature of private companies, standards of governance do not come under the same level of scrutiny as those of public companies. Potentially, greater legal requirements could be introduced for companies which are privately held, in order to assist in providing transparency to board structures and directors' responsibilities. The report did caveat this suggestion with the following statement: "Parliament is rightly cautious about imposing onerous new duties on our companies; but if large public or private companies do not behave in accordance with the ethical standards that society expects, further regulation may need to be considered."

With regard to the substantial pensions deficit encountered by current and former employees of BHS, there is simply not enough money left in BHS to cover this. As a result, the deficit will need to be met by the Pension Protection Fund, to which many other pension schemes also contribute; these are supported by businesses much smaller than BHS. This is not an incident that can be looked at in isolation. Following the inquiry, MPs feel that the future of occupational pensions "is perhaps the greatest challenge facing long-standing British businesses." This may lead to research into stronger and more proactive regulation. Retailers will need to ensure that any concerns in respect of their pensions schemes are addressed and that this is achieved through co-operative work with trustees and pensions providers.

MPs now plan to commence two additional investigations. These will probe the regulation of corporate governance in respect of private companies and the regulation of pensions funds.

The overriding lesson for retailers to take from this inquiry is that, although they may be complying with the law, retailers, and businesses in general, are increasingly being judged on whether they are also acting in the "right way". It is no longer enough to simply comply; businesses should also be ensuring that their working practices are ethical and acceptable to society as a whole.

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