Posted: Wednesday, 19 September 2018 @ 08:06
There has been quite a bit of news about the contraction of discretionary spending this summer. The UK economy is showing its greatest signs of strain since 2012 we are told. Batten down the hatches and prepare for a stormy ride’ is the subtext; we’re heading for a world of a little less luxury.
Of course, there are practical indicators to inform this view, but there are also signs that it is not a generalisation that should be made across all sectors. It is true that inflation has been running at higher levels, mainly caused by fuel (domestic and transport), imported goods (blamed on the exchange rate) and food (wages, production and transport costs). Wages have not been rising fast enough to overcome this rise. The common narrative is that this has caused individuals to tighten their belts regarding non-essential spending.
Galvanising this view is the evidence that certain markets have been hit because they rely on the discretionary spend. For example, the restaurant trade; there have been a number of high profile chains which have had to restructure; Jamie’s Italian, Byron and Carluccio's for example.
Little things mean a lot
The blame, at least in part, has been laid at the door of belt tightening. The reality ‘on the ground’ is a little more complex. There seem to be more restaurants than ever, many of which are flourishing, and other niche markets also seem to be prospering despite apparently being at the mercy of the discretionary spend, and this is not a new phenomena. For example, if we look back to the wake of 2007/8, when many small town businesses were closing in France, after the bakery, the country’s last man standing was often the local salon, closely followed by the patisserie.
The reason? Well, no one in France really considered their pastries or their hair cuts to be discretionary. There was a cultural understanding that whatever the situation, these things were worth striving to retain.
It is a concept that resonates with other businesses in the UK as well. In 2010, The Guardian reported that it was the little luxuries that resisted the downturn, including beauty treatments. By way of example, Abi Wright, Managing Director of spa booking agency Spabreaks.com, began her business in 2008, and has attributed part of the business’s success to individuals not going without luxuries in harder times, but simply downsizing them. You may go without a week-long overseas holiday, but instead you may opt for a couple of days a year having spa treatments in the UK. Spabreaks.com is now the market leader in its field.
Influencers, beauty and fitness trends
Today we continue to find that the beauty and fitness industry is in high demand. Perhaps this is another example of media influence; reality TV shows such as Made in Chelsea, TOWIE, Love Island and The Real Housewives of Cheshire seem to have led to a demand for shiny white teeth, hair extensions, botox, lipo, fake tans and beach ready bodies for both men and women.
The comparative accessibility of the reality TV star, the way the shows have redefined beauty, the high street accessibility of many of the mechanisms to achieve it, and the changing attitude towards health and fitness provide a feel good factor achievable on a scaleable budget. That, combined with the kind of reach, influence and synergy with popular feeling, that reality TV shows have, create a sense that not only are these things achievable, or even necessary in an economic downturn, but there is also a sense that they are no longer discretionary, they are “must-haves”.
Bringing together a number of factors, housing may also be having an influence on discretionary spending. With many potential first time buyers feeling priced out of the market, more and more seem to be giving up on the ambition of house ownership and are becoming content rent. This then allows cash to be diverted from saving for a deposit to spending.
Whatever the reason, despite the changing economy, a downturn in discretionary spending does not mean the same thing for all markets, nor does it present in the same way it may have done 20 years ago.
While this is not intended to be a deeply scientific piece of research, but a few thoughts about certain developments in niche markets which may impact on the perception of risk managers and how the media can influence these perceptions, the good news that there is still strong demand for asset finance in the health and beauty sectors. Although naturally, one would have to caveat that the need to understand the very complex underlying factors in the shifting of the plates.
Article previously published in the NACFB newsletter in August 2018