Far too clever, cobber

We had left for Australia early on Boxing Day and in the rush had forgotten to buy any adaptors to convert from UK to Australian electrical sockets.  So our first stop on the way from Brisbane airport to our relatives’ house was at an electrical store to buy the necessary.  I was slightly taken aback at the cash desk when the young man asked me what on earth had happened in the UK to lead to the failure of such a great name as Woolworths.

 Little did I know that the electrical store I visited was owned by Woolworths and run by passionately loyal employees of Woolworths (Australia).  The following day we were taken to a large and very impressive supermarket – Woolworths – looking amazingly like one of our best Tesco stores in the UK.  Whilst Woolies in the UK has gone to the wall, the giant and very well-managed Australian version is actually the 22nd biggest retailer in the world, according to recent global research by accountants Deloitte.  The top three are Wal-Mart in the US, Carrefour in France and Tesco in the UK, but Woolies Australia, at almost half the size of Tesco in terms of turnover, is a real star bearing in mind the very much smaller market in which it operates.

I later learned that Woolworths, Australia, a major supermarket group, whilst owning a number of large speciality chains (such as electrical and wine stores) is also a leading brand in petrol stations, hotels and casinos.  What a very different story to their UK counterparts.  Unfortunately it all comes down to vision and quality of management.  Tesco had the vision 30 years ago to raise its game and play to the future whereas Woolworths UK remained in its post-war time warp.

 A few days later we were doing the obligatory river cruise through the beautiful and modern city of Brisbane when our attention was drawn to a massive and extremely artistic neon sign on the main wall of the Brisbane Gallery of Modern Art about half a mile away.  It gave out one huge message, the title of their current multi-media exhibition – OPTIMISM. 

 These sentiments were prevalent everywhere we went around Australia.  On a subsequent trip up the coast to an ocean resort at Noosa the local newspaper was full of opinions about the threat of recession.  Tex Pipke, head of the Cooroy Chamber of Commerce, suggested that “this community is opposed to the idea of recession in Australia, to the point that we might not participate.”  Speaking about local developments in trade and tourism over recent years he went on to say “Why would we be depressed?  We have a lot to celebrate, so let’s not go out there and participate in this recession.”

 Whilst I have been away on this antipodean trip I have had plenty of time to read the endless analysis both by competent and less competent journalists, business people, financiers, bankers and intellectuals, attempting to explain how the crazy explosion of inappropriate credit over the last decade led to the inevitable credit crunch which in turn is leading to a massive global recession.  All of this intellectualisation is fine but it fails to address the missing ingredient – what to do now.

 We have had massive sell-offs before, often following major financial dislocations in the market place.  These have involved various different sectoral difficulties over the years, the most recent being the bursting of the ‘tech bubble’ in 1999.  Each time we have managed to overcome the challenges and move forwards.  Unfortunately this time the credit crunch symptoms (in essence a sectoral difficulty) were immediately identified with the 1930’s depression and as a result we have ‘apparently’ moved directly from healthy economic world growth to a self-induced and completely unnecessary recession. 

Obviously the tightening (and often unavailability) of credit has had an impact on personal and corporate capital spending but, as an example, I needed to upgrade my own car in August 2008 and had no difficulty whatsoever in getting extremely inexpensive terms from a finance company owned by one of the big four banks (as was).  So why has the sale of motor cars fallen so dramatically over the last year?  Not just in the UK or the United States but virtually everywhere in the world (car production in France was down 8.1 per cent in November after October’s 22 per cent plunge according to Insee, France’s national statistics agency).  The knock-on effects of a slowdown in the car industry have affected many other connected industries.

 It appears to me that the whole world has gone mad.  Yes unemployment has risen but spending reductions have not been limited to those unfortunate to be out of work, everyone seems to have completely stopped spending.  As a result manufacturers have stopped ordering raw materials and retailers have stopped ordering finished goods.  Most capital spending has stopped or is stopping and everyone is cutting revenue spending.  Trade is falling off a cliff. 

 The strange thing is we are all accustomed to a certain standard of living.  With interest rates now on the floor, oil prices at almost a quarter of what they were early in 2008 and various other prices becoming competitive (Australia is now over the drought of recent years and is heading for a bumper harvest) the panic will surely ease.  Then we will be spending again, probably as early as later in 2009.  Many UK consumers have seen their disposable income rise by between £5,000 and £15,000 per annum net over the last year.  So, suddenly consumption will be up – relative to now – but everyone in business will be completely de-stocked!  There will then need to be a dramatic resumption of manufacturing/production.  So there will be a resumption of the classic ‘go’ part of the age-old ‘stop/go’ cycle and off we will go again!

 I believe Gordon Brown, Barack Obama, the Chinese Government and all other sensible thinking people wishing to prime-start their economies are absolutely correct, BUT without the consumer, who accounts for a huge proportion of overall global economic activity, normalising consumption, these other measures will take forever to work.  Intellectual discussion and actions by central governments are all well and good but what the world needs now is a return to normality. 

 The last time there was a widespread call for normality from the public was immediately after 9/11 when New York mayor, Guiliani, went public with a plea for New Yorkers to ‘carry on as normal’ (go shopping, go to the theatre, go to the restaurants).  His motive was more by way of a message to Osama bin Laden that the West would not be compromised, but his call was answered by the people.

 The current situation is not related to terrorism, but it is nevertheless extremely serious.  Whilst we do not want anybody to spend above their means nor to borrow money they can ill afford to borrow, it is important that we normalise our consumption patterns RIGHT NOW, if we are to avoid a short sharp and damaging recession.  If you are due to trade up your car, if you are due to take a holiday, if you are due to spend money on an habitual basis then do so, now.  If we all do this then we can avoid this imminent recession.

 So, cobber, stop intellectualising about the credit crunch and the subsequent chaos and get back to living your life as per normal – just like the Australians want to.  That way we can all survive this man-made disaster that the Press are constantly talking us into.  As Nike says ‘just do it’ and I suggest you convince all your friends and family to ‘do it’ too.

Paul Wilcox,
Chairman & Technical Director, WAY Group.

Posted on 20th January, 2009 |
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