On 5 and 6 April, there was a conference on conscious capitalism in San Francisco. In January, a new book, Conscious Capitalism: Liberating the Heroic Spirit of Business, by John Mackey and Rajendra Sisodia, was published. Many in the business world are enthusiastic about this seemingly new approach to business, which focuses on broader social, environmental and ethical goals, rather than simple profit maximisation.

As the Washington Times review linked to below states:

“Conscious Capitalism” promotes a business culture that embodies “trust, accountability, caring, transparency, integrity, loyalty and egalitarianism.” The management ideal of “Conscious Capitalism” contains four key elements of “decentralization, empowerment, innovation and collaboration.” Above all, this exemplary form of business practice relies on careful attention to four tenets: higher purpose and core values, stakeholder integration, conscious leadership and conscious culture and management.

So how realistic is this vision of caring capitalism? There may be a few inspiring businesspeople, truly committed to improving the interests of the various stakeholders of their business and society more generally, but could it become a model for business in general? And if so, does this require education, monitoring and regulation? Or can a libertarian approach to business generate an environment where conscious and caring capitalists flourish and succeed better than those with a more narrow focus on profit?

The following videos and articles discuss conscious capitalism and the arguments of those, such as John Mackey, founder and co-CEO of Whole Food Market, who advocate it.

Webcasts
Conscious capitalism The Economist, John Mackey (15/3/13)
Conscious Capitalism: Heroes of the Business World Conscious capitalism, April in San Francisco (5/4/13)
It’s Not Corporate Social Responsibility Conscious capitalism, John Mackey (Jan 13)

Articles, reviews and information
Conscious Capitalism: Creating a New Paradigm for Business Whole Planet Foundation, John Mackey
Companies that Practice “Conscious Capitalism” Perform 10x Better Harvard Business Review, Tony Schwartz (4/4/13)
4 Ways to Become a (More) Conscious Capitalist Inc., Francesca Louise Fenzi (8/4/13)
The New Management Paradigm & John Mackey’s Whole Foods Forbes, Steve Denning (5/1/13)
Book Review: ‘Conscious Capitalism’ Washington Times, Anthony j. Sadar (20/3/13)
Book Review: Whole Foods Co-CEO John Mackey’s Conscious Capitalism Huffington Post, Christine Bader (28/1/13)
Chicken Soup for a Davos Soul Wall Street Journal, Alan Murray (16/1/13)
Conscious business Wikipedia

The English Premier League (EPL) has negotiated a record TV deal which will generate £5.5 billion of revenue over the next 3 years – beginning in the season 2013–14. This represents a 70% increase on the previous deal. Controversy has arisen over some initial proposals put forward by the EPL as to how the money will be spent. The owners of the clubs in the Championship of the English Football League (EFL) are particularly concerned about the size of the proposed payments to the three teams relegated from the EPL.

Some 30 years ago the money generated from the sale of television rights was equally shared between all the teams in the then four divisions of the English Football League (EFL). In 1992 the top division of the English Football League broke away and formed the English Premier League (EPL). This newly formed EPL negotiated a separate television deal and kept the majority of the money. However, some payments were and still are made to the teams in the EFL and to organisations such as the League Managers Association and Professional Footballers Association. For example in 2011-–12 the EPL donated £189.4 million of the £1.2 billion generated from that year’s TV deal.

The majority of the money donated by the EPL is spent in two main ways. First, some money is redistributed to all the teams in the EFL: i.e. The Championship, League 1 and League 2. These are known as ‘solidarity payments’ and in 2011–12 the EPL spent £49.8 million on this scheme. Each club in the Championship received £2.3 million. It has been proposed that the amount paid into this scheme should be increased by 5% in the season 2013–14. Second, a relatively large amount of money is paid over a four-year period to the three teams relegated each season from the EPL into the Championship. These are known as ‘parachute payments’ and in the season 2011–12 the EPL spent £90.9 million on this scheme. The rationale for having parachute payments is to help the relegated teams adjust their wage bills to the much lower revenue streams that come from playing in the Championship. Proposed changes to the scheme are outlined in Table 1.

The chairmen of the football league clubs met on the 20th March 2013 and a number of them expressed concerns about the relatively large increase in the parachute payments compared to the solidarity payments. They were particularly concerned that the changes to the funding would damage the competitive balance of the Championship.

Competitive balance refers to how the most talented players are distributed amongst the teams in a league. For example, are the majority of the most talented footballers playing for just a couple of the teams? In this case the league is competitively imbalanced and the teams with the best players will tend to win far more games than the other teams. The outcome of the league will be very predictable. If the most talented players were more evenly spread across all the teams in the league, then it would be more competitively balanced. Matches and the outcome of the league would become more unpredictable.

Does the level of competitive balance matter? Some sports economists have argued that it may have a significant impact on the success of the league. This is because fans may value the unpredictability of the results. It follows that closer and more unpredictable results will generate higher match-day attendances and increase the revenues of the clubs.

This is an interesting argument and is the opposite of what economic theory would predict for most markets. For example, the standard prediction would be that as firms outperform their rivals, they generate more revenue and profit. If they manage to drive all their rivals out of business, they would become a pure monopoly and make large abnormal profits. However in professional team sports the outcome may differ significantly. If the unpredictability of the league is highly valued by fans, then teams will generate more revenue when they have strong and evenly matched rivals.

It has been reported that further discussions about the distribution of the money will take place this month with the owners of the championship clubs arguing that there should be smaller increases in parachute payments and much larger increases in solidarity payments. Representatives of the EPL have argued that the parachute payments do not distort competition and make the championship predictable. They point out that at present only one of the top six teams in the championship (Hull) receives parachute payments, while only one of the teams promoted from the Championship in the season 2012–13 (West Ham) received these payments.

Articles
Premier League warned over rich and poor split in wake of TV deal The Guardian, Owen Gibson (19/3/13)
Championship clubs angered by Premier League parachute boost Daily Mail, Charles Sale (6/2/13)
Football league is to lessen the advantage of parachute payments The Guardian, Owen Gibson (20/3/13)
Championship clubs warn Premier League over hike in parachute payments for relegated teams The Independent, Majid Mohamed (20/3/13)
Increased parachute payments could lead to a salary cap in the Championship The Post, A. Stockhausen (21/3/13)
Scudamore:Parachute payment system fair Eurosport, Andy Eckardt (22/3/13)
Parachute payments more than a softened landing The Daisy Cutter, Richard Brook (21/3/13)

The high street has changed significantly over the past 50 years and is likely to continue to do so over the next 50 years. Much of these changes have occurred as a result of technological developments. However, one thing that has remained largely unchanged is the telephone box. Although there are fewer of them, with the majority of people owning a mobile phone, city centre high streets still have their fair share of phone boxes.

With tastes constantly changing, products and services come in and out of fashion. But with technology constantly developing, products and services that were once needed have become obsolete, replaced by their more advanced substitutes. We’ve seen e-commerce develop, such that long-standing high street retailers have faced closure and the development of mobile phones and other communication devices have meant that the once essential phone box is now rather redundant. At least, in its traditional function. The Mayor of New York, Michael Bloomberg said:

New York is the most dynamic city in the world, and while technology has changed all around us, the city’s payphones have remained mostly the same for decades.

If we were to place the phone box on the product life cycle, it has certainly reached maturity and in many developed countries, even decline. But can extension strategies be used to create a new function for the phone box?

This is certainly happening in New York, where a reinvent challenge has been launched to help phone boxes adapt to technological innovation. Suggestions include using them as information sources, phone chargers, weather monitors and advertising boards. In the UK, phone boxes have even been fitted with defibrillators and are the first port of call for saving lives. But would this be enough to reinvent the phone box, whose numbers have fallen in New York from 35,000 to only 11,000?

Some say that the phone box is no longer relevant and while the idea of a ‘community hub’ remains appealing, the cost of maintaining them can be rather high. For others, the phone box is still essential, especially for those on lower incomes, who perhaps cannot afford what some people see as a necessity: a mobile phone. Are phone boxes, therefore, a means of ensuring access to communication for all socioeconomic groups? Also, perhaps for all age groups? As technology and tastes continue to change over the coming decades, the phone box will go in one of two directions: a revival or obsolescence. The following articles consider this.

New York phone boxes get new lease of life BBC News, Michael Millar (22/3/13)
Phone box in Ashwell is fitted with defibrillator to help save lives Rutland and Stamford Mercury (23/3/13)
Red Rutland phone box becomes 2000th life-saving hub ITV News, Pete Bearn (20/3/13)
The trashing of the iconic red phone box is one bad call Telegraph, Cristina Odone (11/3/13)

In 2009, the European Commission investigated Microsoft’s practice of bundling its own browser, Internet Explorer, with new copies of Windows. It found that this was an abuse of market power and created an unfair barrier to entry of other browsers, such as Firefox.

An agreement was reached that Microsoft would include a ‘choice screen’ in which users in the EU would be given a full list of alternative browsers and asked which they would like to install. On making their selection, a link would take them to the browser site to download the installation program. This screen would be available until 2014. Between March 2010, when the choice screen was first provided and November of the same year, 84 million browsers were downloaded through it.

In May 2011, however, the screen was no longer present on new Windows 7 purchases. The Commission took some time to realise this: indeed it was Microsoft’s rivals that pointed it out. The screen reappeared some 13 months later, after some 15m copies of Windows software had been sold.

For this lapse, the Commission has just fined Microsoft €561m. Commission Vice President in charge of competition policy, Joaquín Almunia, said:

In 2009, we closed our investigation about a suspected abuse of dominant position by Microsoft due to the tying of Internet Explorer to Windows by accepting commitments offered by the company. Legally binding commitments reached in antitrust decisions play a very important role in our enforcement policy because they allow for rapid solutions to competition problems. Of course, such decisions require strict compliance. A failure to comply is a very serious infringement that must be sanctioned accordingly.

This may seem unduly harsh, given that Internet Explorer’s share of the browser market has fallen dramatically. In 2009, it had around 50% of the European market, with its main rival at the time, Mozilla’s Firefox, having just under 40%. By 2013, Internet Explorer’s share has fallen to around 24% and Firefox’s to around 29%. Google’s Chrome, which was just starting up in 2009, has seen its share of the European market rise to around 35% and is now the market leader. Partly this is due to the rise in tablets and smartphones, a large proportion of which use Google’s Android operating system and the Chrome browser.

Not surprisingly, the European Commission is investigating Google to see whether it is abusing a dominant position. Is Google’s case, it’s not just about its share of the browser market, it’s more about its share of the search market, which in the EU is around 90% (compared with around 65% in the USA). As The Economist article below states:

The Commissioner believes that Google may be favouring its own specialised services (eg, for flights or hotels) at rivals’ expense; that its deals with publishers may unfairly exclude competitors; and that it prevents advertisers from taking their data elsewhere.

Joaquín Almunia asked Google to respond to these concerns by January 31. Google delivered its suggestions on the deadline, but we await to hear precisely what it said and how the Commission will respond. It is understood that Google’s proposal is for clearly labelling its own products on its search engine.

Articles
Microsoft Fined $732 Million By EU Over Browser eWeek, Michelle Maisto (6/3/13)
Microsoft faces hefty EU fine The Guardian (6/3/13)
Sin of omission The Economist (9/3/13)
Microsoft fined by European Commission over web browser BBC News (6/3/13)
EU commissioner Joaquin Almunia announces Microsoft fine BBC News (6/3/13)
Microsoft’s European Fine Comes in an Era of Browser Diversity Forbes, J.P. Gownder (6/3/13)
Life after Firefox: Can Mozilla regain its mojo? BBC News, Dave Lee (11/4/12)
Google responds to European commission’s antitrust chief The Guardian, Charles Arthur (31/1/13)
Google May Clinch EU Settlement After ‘Summer,’ Almunia Says Bloomberg Businessweek, Stephanie Bodoni and Aoife White (22/2/13)

European Commission Press Release
Antitrust: Commission fines Microsoft for non-compliance with browser choice commitments Europa (6/3/13)

The Big Four are well known: Deloitte, Ernst and Young, KPMG and PWC. They act as auditors for 90% of the UK’s stock-market listed companies. They have a very close relationship with the companies that they audit and because of this have faced criticism of not warning of the financial crisis. A further accusation is that the relationship between auditors and managers has become blurred.

In some sense, there is a problem of divorce of ownership from control. The companies that are audited by the Big Four have shareholders who are interested in profits and their dividends. But they employ managers who are responsible for the day-to-day running of the business. However, there are concerns that the auditors have become more concerned with meeting the interests of the managers and not of the shareholders. It has been suggested that the company’s management tend to ‘present their accounts in the most favourable light, whereas shareholder interests can be quite different.’ Laura Carstensen, the chair of the Audit Investigation Group said:

It is clear that there is significant dissatisfaction amongst some institutional investors with the relevance and extent of reporting in audited financial reports … management may have incentives to present their accounts in the most favourable light, whereas shareholder interests can be quite different.

The Big Four have been criticised for limiting competition in the industry. The Competition Commission has said that companies typically stay with the same auditing firm and this acts to limit competition. One suggestion to encourage competition is to enforce rotation of Auditors. However, the Big Four have said that the market remains competitive, ‘healthy and robust’ and that any enforcement as noted above would not be in the public interest. Other, smaller auditing companies have praised the preliminary report of the Competition Commission. One firm said:

No one solution will achieve market correction, but rather a combination of tendering requirements, encouragement of transparency and dialogue between auditors, companies and investors, and reform of outdated exclusionary practices should provide a backdrop for a healthier FTSE 350 audit market.

The report is not yet final, but the future of the Big Four is somewhat uncertain, especially with the European Commission’s desire to break them up. The following articles look at this industry.

Big Four accountants reject claims over high prices and poor competition The Guardian, Josephine Moulds and David Feeney (22/2/13)
Competition Commission raps Big Four accountants BBC News (22/2/13)
Big Four’s rivals welcome audit shake-up Financial Times, Adam Jones (22/2/13)
UK’s “Big Four” accountants under fire from watchdog Reuters, Huw Jones (22/2/13)
Big Four chastised by Competition Commission The Telegraph, Helia Ebrahimi (22/2/13)
The uncompetitive culture of auditing’s big four remains undented The Guardian, Prem Sikka (23/2/13)
Big Four accountants ‘in closed club on audits’ Independent, Mark Leftly (23/2/13)

The news in many European countries has been dominated in February by the ‘horse meat scandal’. Small traces of horse meat may be the result of faulty quality control. But the significant amount of horse found in several processed meat products suggest fraud at one or more points in the supply chain from farm to supermarket or other outlet. Indeed several specific suppliers, from abattoirs to processors are facing criminal investigation.

The scandal has put the supply chain under intense scrutiny. Part of the problem is that the supply chain is often very long and complex. As the Guardian article states:

The food and retail industries have become highly concentrated and globalised in recent decades. A handful of key players dominate the beef processing and supermarket sectors across Europe. They have developed very long supply chains, particularly for their economy lines, which enable them to buy the ingredients for processed foods from wherever they are cheapest at any point, depending on exchange rates and prices on the global commodity markets. Networks of brokers, cold stores operators and subcontracted meat cutting plants have emerged to supply rapidly fluctuating orders “just in time”. Management consultants KPMG estimate there are around 450 points at which the integrity of the chain can break down.

Then there is the huge pressure on all parts of the supply chain to reduce costs.

Supermarkets use their market power to drive down the prices of the products they buy from their suppliers and this has a knock-on effect backwards down the supply chain. This pressure has intensified as real wages have fallen and consumers have found their budgets squeezed.

At the same time, beef and other meat prices have been rising as the costs of animal feed have soared. This all puts tremendous pressure on suppliers to add cheaper ingredients. Again to quote the Guardian article:

Manufacturers add other cheap ingredients including water and fat, and use concentrated proteins to bind the water and fat in. They may appear on labels as ‘seasoning’. One of the cheapest sources of these protein additives is pork rind. It is possible that horse hide is now also being used. The widespread adulteration of cheap chicken breast with pig and beef proteins and water has been uncovered in previous scandals. The beef proteins were derived from hydrolysed cattle hides. It is not illegal to use these protein concentrates so long as they are identified correctly to the manufacturer.

It is not surprising that if cheap horse meat becomes available to suppliers, such as from old horses towards the end of their working lives, some processing companies may be tempted to add it fraudulently, stating that it is beef.

The articles look at the issues of long and complex supply chains in the processed food industry and assess why they have evolved into their current form and the difficulties in regulating them.

Horsegate: heed economics of the cold chain The Grocer, Andrew Godley (16/2/13)
Horsemeat scandal: the essential guide The Guardian, Felicity Lawrence (15/2/13)
After the horse has been bolted The Economist (16/2/13)
Slavery, not horse meat, is the real scandal on our doorstep The Telegraph, Fraser Nelson (14/2/13)
Industry must take the reins on food safety Globe and Mail (Canada)Sylvain Charlebois (15/2/13)
Supply chains changed the growth model The Economist, Richard Baldwin (15/8/12)
Supply-chain management The Economist (6/4/09)
Tesco pledges to open up supply chain after horse meat scandal The Telegraph (16/2/13)
Horse meat scandal: Shoppers who buy ‘cheapest food’ at risk The Telegraph, James Quinn, Jason Lewis and Patrick Sawer (16/2/13)
Let Them Eat Horse Bloomberg, Marc Champion (15/2/13)
Scandal shows meat supply chain must be policed heraldscotland (14/2/13)
MPs push for new powers for FSA as officials seize yet more suspect meat Independent, Martin Hickman (13/2/13)

The technology sector is highly complex and is led by Apple. However, as the tablet market is continuing to grow, it is becoming increasingly competitive with other firms such as Samsung gaining market share. Although both firms sell many products, it is the growing tablet market which is one of the keys to their continued growth.

Tablet PCs have seen a growth in the final quarter of 2012 to a high of 52.5 million units, according to IDC. Although Apple, leading the market, has seen a growth in its sales, its market share has declined to 43.6%. Over the same period, Samsung has increased its market share from 7.3% to 15.1%. While it is still a huge margin behind Apple in the tablet PC market, Samsung’s increase in sales from 2.2 million to 7.9 million is impressive and if such a trend were to continue, it would certainly cause Apple to take note.

It’s not just these two firms trying to take advantage of this growing industry. Microsoft has recently launched a new tablet PC and although its reception was less than spectacular, it is expected that Microsoft will become a key competitor in the long run. There are many factors driving the growth in this market and the war over market share is surely only just beginning. The chart shows the 75.3% growth in sales in just one year. (Click here for a PowerPoint of the chart.)

A Research Director at IDC said:

We expected a very strong fourth quarter, and the market didn’t disappoint…New product launches from the category’s top vendors, as well as new entrant Microsoft, led to a surge in consumer interest and very robust shipments totals during the holiday season’

Apple has been so dominant in this sector that other companies until recently have had little success in gaining market share. However, with companies such as Samsung and ASUS now making in-roads, competition is likely to become fierce. There are already concerns that Apple’s best days are behind it and its share price reflects this. People are now less willing to pay a premium price for an Apple product, as the innovations of its competitors have now caught up with those of the leading brand name. The following articles consider this growing market.

Samsung gain tablet market share as Apple lead narrows BBC News (1/2/13)
Apple snatches US lead from Samsung Financial Times, Tim Bradshaw (1/2/13)
Apple revenues miss expectations despite high sales figures BBC News (24/1/13)
Samsung eats into Apple sales in the tablet market Mirror, Ruki Sayid (1/2/13)
MacWorld’s Apple celebration opens amid fears of tech giant’s decline Guardian, Rory Carroll (31/1/13)
Samsung’s tablet sales soar as Apple’s grip on market loosens Daily News and Analysis, Richard Blagden (2/2/13)
Samsung takes a nibble out of Apple’s tablet lead InfoWorld, Ted Samson(31/1/13)
Tablet Sales up 75% as Samsung and Asus Gain on Apple Interational Business Times, Edward Smith (31/1/13)

Over the past five years the Office of Fair Trading (OFT) has been closely studying the market for personal bank accounts in the UK. Last week, it announced its latest findings and the evidence seems to suggest that there remains a lack of competition in the market.

On the positive side, it reports that there has been a large fall in unarranged overdraft fees. However, despite this, according to the OFT banks still make on average £139 per year from every active current account. Furthermore, concentration has increased with the four largest banks (Barclays, Lloyds, HSBC and RBS) now accounting for 85% of the market and there has been little new entry. It appears that one of the key factors in enabling these main players to dominate the market and reap high profits is a lack of consumer switching behaviour. According to the OFT chief executive, Clive Maxwell:

Customers still find it difficult to assess which account offers the best deal and lack confidence that they can switch accounts easily. This prevents them from driving effective competition between providers.

Despite all these concerns, the OFT declined to refer the market to the Competition Commission for a more in-depth investigation and potential remedial action. Instead, the OFT will look at the market again in 2015. Richard Lloyd, the executive director at the consumer organisation Which?, was disappointed with this decision and was quoted in the The Guardian as saying:

Everyone – consumers, the government, leading bankers and now the OFT – seems to agree that big change is needed in banking, and that much greater competition on the high street is urgently needed to make the banks work for customers, not bankers.

Whilst at least for the moment, the Competition Commission will not get the chance to take action, there are still several reforms underway that may affect competition in the market. First, the OFT is increasing pressure on banks to allow consumers to have portable account numbers that they can take with them if they switch provider. Second, as a result of the Independent Commission’s review, banks will be required to switch a customer’s account in one week, rather than the average of 18 days it currently takes, and this process will become much more seamless. Finally, Lloyds has agreed to sell over 600 branches to the Co-op in order to meet the European Commission’s requirements following the government bail-out of the bank in 2008. This will increase the Co-op’s share of the current account market to 7%. It will be interesting to see how these reforms affect the market. If there is not substantial evidence of increased competition then the market is likely to face more scrutiny from the competition authorities.

Bank accounts: OFT says significant change needed BBC (25/01/13)
OFT: banks failing consumers The Economic Voice (25/01/13)
Let’s make bank accounts as easy to switch as mobiles The Telegraph, Andrew Oxlade (28/01/13)
OFT chief calls for more competitive banking sector The Telegraph, Denise Roland (30/01/13)

Six of the major tea producing countries – India, Kenya, Sri Lanka, Indonesia, Rwanda and Malawi – have formed an International Tea Producers’ Forum (ITPF). Together these countries produce slightly more than the world’s tea. The hope of the members of the new ITPF is that their cartel will allow them to increase the price of tea to the growers and to create greater price stability.

According to the Assam Tribune article below:

ITPF’s main objectives include – safeguarding the interests of the tea-producing countries, evolving collective solutions for the problems facing the producers, providing technical cooperation, sharing of technology and expertise by the member countries, undertaking market studies and research projects to address any specific issues concerning tea in general or any variety of tea, among others.

And according to the article from Sri Lanka’s Daily News:

Chairman of the Planters’ Association of Ceylon, which represents the interests of 23 Regional Plantation Companies, Lalith Obeyesekere said this was a landmark occasion. Sri Lanka particularly looks to the forum to provide long-term sustainability to the tea industry in maintaining price stability and quality standards, among the other objectives set out in the mandate… The Planters’ Association said they were confident that Sri Lanka could use the ITPF to re-look at the industry in order that local tea producers realize their full potential.

Sri Lanka’s plantation industries minister Mahinda Samarasinghe said:

The bulk of production is in the hands of smallholders. So there’s a need to increase their incomes. Price stability is definitely important.

The main aim of the ITPF over the longer term is likely to be to raise tea prices. The chart shows international tea prices from 1983 to the present day. As you can see, they have fluctuated considerably. Note that these are prices in nominal terms and hence do not take inflation into account. Click here for a PowerPoint of the chart.

But if the main aim is to increase prices to tea growers, how could this be achieved? One objective of the ITPF is to stimulate demand for tea by ‘promoting tea consumption through generic promotional campaigns’. The aim would be to encourage people to switch from coffee and soft drinks.

But to take advantage of its market power, the cartel might also want to reduce tea production, thereby pushing up the price. This, of course, would be more feasible if it had a larger than 50% share of the market.

Although production quotas are not currently part of the agreement, these are likely to be considered at future meetings, especially if the three other large producers – China, Vietnam and Iran – can be persuaded to join.

China, with some 38% of the market, is the world’s largest tea producer. Although it sent an observer to the meeting (as did Iran), it was not one of the signatories. If it could be persuaded to join the cartel, this would increase its power. Nevertheless, China specialises in different types of tea, mainly green teas, and is not the world’s biggest exporter – that is Kenya.

Articles
Tea nations join forces Radio New Zealand (25/1/13)
International Tea Producers’ Forum formed Assam Tribune, Ajit Patowary (23/1/13)
Planters’ Association upbeat on newly formed International Tea Producer’s Forum Daily News (Sri Lanka) (26/1/13)
Leaf Lobby: Sri Lanka hosts tea producer forum Lanka Business Online (24/1/13)
‘Tea cartel’ formed by biggest producing nation BBC News (23/1/13)
Tea producers brew up plan to raise prices Emirates 24/7 (23/1/13)

Data
Tea Monthly Price – US cents per Kilogram Index Mundi

Comet, Peacocks, Woolworths, JJB, Jessops and now HMV – they all have one thing in common. The recession has hit them so hard that they entered administration. HMV is the latest high street retailer to bring in the administrators, despite insisting that it does have a future on the UK’s high streets. With debts of £176m and huge competition from online retailers, the future of HMV is very uncertain.

Over the past decades, companies such as Amazon, ebay, LoveFilm, Netflix and apple have emerged providing very stiff competition to the last remaining high street seller of music and DVDs. People have been turning more and more to the internet to do their shopping, with cheaper prices and greater choice. The speed of delivery, which in the past may have been a disadvantage of buying from somewhere like Amazon, is now barely an obstacle and these substitute companies have created a difficult environment for high street retailers to compete in. Despite going into administration, it’s not necessarily the end of the much-loved HMV. Its Chief Executive said:

We remain convinced we can find a successful business outcomes. We want to make sure it remains on the high street … We know our customers fell the same way.

While the recession has undoubtedly affected sales at HMV, is this the main reason for its demise or are other factors more relevant? As discussed, online retailers have taken over the DVD and music industry and with downloading increasing in popularity and CD/DVDs on sale in numerous locations, including supermarket chains, HMV has felt the competitive pressure and its place on the high street has come into question. As Neil Saunders, the Managing Director of Conlumino said:

By our own figures, we forecast that by the end of 2015 some 90.4 per cent of music and film sales will be online. The bottom line is that there is no real future for physical retail in the music sector.

Further to this, prices have been forced downwards and HMV, having to pay high fixed costs to retain their place on the high streets, have been unable to compete and remain profitable. Another contributing factor could be an outdated management structure, which has not responded to the changing times. Whatever the cause, thousands of jobs have been put at risk. Even if buyers are found, some store closures by the administrators, Deloitte, seem inevitable. Customer gift vouchers have already become worthless and further losses to both workers and customers seem likely. It is thought that there will be many interested buyers and huge support from suppliers, but the former is likely to remain a relatively secretive area for some time.

This latest high street disaster will undoubtedly raise many questions. One theory about recovery from a recession looks at the need for many businesses to go under until the fittest are left and there is sufficient scope for new businesses to emerge.

Could it be that the collapse of companies such as Woolworths, HMV, Comet, Jessops and Blockbuster is an essential requirement for economic recovery? Or was the recession irrelevant for HMV? Was its collapse an inevitable consequence of the changing face of Britain’s high streets and if so, what does the future hold for the high street retailers? The following articles consider the demise of HMV.

HMV: a visual history BBC News (15/1/13)
Chief executive says ‘HMV still has a place on the high street’, as customers are told their gift vouchers are worthless Independent, James Thompson (15/1/13)
Potential buyers circle stricken HMV Financial Times, Andrea Felsted (15/1/13)
HMV and independents to urged to work together to save in-store music market BBC News, Clive Lindsay (15/1/13)
HMV record chain was besest by digital downloads and cheap DVDs The Guardian (15/1/13)
The death of traditional retailers like HMV started when we caught on to one-click and the joy of owning DVDs wore thin Independent, Grace Dent (15/1/13)
HMV shoppers: ‘I’m disappointed, but it’s understandable why they went bust The Guardian, James Brilliant (15/1/13)
HMV: Record labels could take HMV back to its 1920 roots The Telegraph, Graham Ruddick (15/1/13)
HMV’s future seen as handful of stores and website Reuters, Neil Maidment and James Davey (15/1/13)
HMV leaves social gap in high street BBC News, Robert Plummer (15/1/13)
Is there good news in HMV’s collapse? BBC News, Robert Peston (15/1/13)
Is it game over for UK retail? The Guardian, Larry Elliott (18/1/13)
High Street retailers: Who has been hit hardest? BBC News (16/1/13)