THE KPMG/SYNOVATE RETAIL THINK TANK

The KPMG/Synovate Retail Think Tank (RTT) was jointly set up in 2006 by professional services firm KPMG and retail research group Synovate, both Associate Members of the British Retail Consortium. The Retail Think Tank has been conceived and created to provide the authoritative, credible and most trusted window on what is really happening in retail and to develop thought leadership on the key areas influencing the future of retailing in the UK. The intended audience for the outputs of the RTT is primarily retailers as well as anyone with an interest in all aspects of retail and retailing.

The Retail Think Tank serves to give a balanced, considered, and unbiased view on what the true state of affairs for the retail sector is, both looking back on the three month period just concluded and looking ahead to the next three months and beyond. The RTT meets quarterly, in private, and discusses current, predicted and blue-sky ‘what if’ scenarios affecting retail in the UK.

For further information about the KPMG/Synovate Retail Think Tank, please visit www.retailthinktank.co.uk

FASHION AND LUXURY GOODS

by Dr. Philippa Malmgren

The world economy is now in the midst of the first supply-side shock since the 1973 Opec crisis. Lack of access to lending and working capital has destroyed many of the marginal additional suppliers in all extractive industries – farming, mining and energy – thus pushing these prices, from cotton and rubber, to iron ore and oil, not only upward but sometimes to record highs. 50% of an emerging market worker’s income is spent on food and energy. So, these price pressures are squeezing incomes and compelling people to demand change. In North Africa and the Middle East, food inflation has sparked broader civil unrest, while in China, India and Bangladesh it has sparked huge wage demands. The combination of record prices for raw materials and double digit wage hikes means the cost of producing textiles, footwear and luxury goods is going to rise in 2011 for the first time since 1985. It also means that the principal target markets for fashion and luxury goods, such as China, are now potentially going to grow less quickly and be less stable. China may be growing at nearly 10% but inflation is now officially running at 6% and unofficially at 10%; this has enormous implications for production costs, sales assumptions and will increasingly shift the location of demand and production to the West. And, increased inflation fears will also continue to drive up the price of hard assets that matter to luxury goods producers and consumers – including gold, diamonds and prime retail property.

Meanwhile, the West has been burdened by record debt, thus causing luxury goods and fashion retailers to turn their attention to emerging markets and to focus on their market niche’s in the West more aggressively. The demand for “Value for Money” has forced high-end luxury into higher pricing points and more exclusive products and forced low-end fashion into lower pricing points and higher quality. This trend is set to persist. In addition, the West is dealing with its debt burden by defaulting on it – The Americans are inflating by throwing free money around (QE2), the Europeans are edging closer to defaults (haircuts on the bonds and abandoning commitments to the taxpayers which include cutting spending on everything from defence to student loans to rubbish collection). As a result, the debt burden will lessen over time. This means demand and sales in the West will continue to pleasantly surprise the fashion and luxury goods industry.

Strong brands will become even more valuable because they can pass on higher prices to their customers without sacrificing market share. Weak brands will come under pressure as higher input costs and changing consumer preferences force them to either innovate or die. Innovation in the arts, as a result, will be a powerful theme for the fashion and luxury goods industry. Just as the financial crisis destroyed Hollywood’s lock on film production and opened the door to a new generation of Indie films, so will fashion and luxury goods find that innovation will come from smaller independent creatives who can appeal to the changing demands of consumers faster than most big companies. The last few years have generated extraordinary pain and loss for workers and consumers worldwide. As they attempt to build a new future it is inevitable they will find hope in creativity, thus giving rise to a new generation of taste, style, price and quality requirements that will inevitably need to be met. Those who can meet this challenge will win.

(First published in March 2011)

NEW STORE CLOSURE STATS SHOW URGENT NEED FOR HIGH STREET RESCUE PLAN

July 8, 2011

Figures out today showing the rate of retail closures in different parts of the UK so far this year demonstrate the importance of protecting and promoting our high streets, the British Retail Consortium (BRC) said.

The statistics, released by PriceWaterhouseCoopers and the Local Data Company, reflect trends picked up by the BRC’s own figures. Poor consumer confidence and shrinking disposable incomes are having a negative impact on non-food retailers in particular and exacerbating long-standing problems in some of our town centres. British Retail Consortium Director General Stephen Robertson said: “High streets are at the heart of local communities and economies, providing jobs and essential services, but some are in trouble. These figures are further evidence of the tough trading conditions being experienced by non-food retailers in particular. With household disposable income falling, consumers are very reluctant to spend on non-essentials. The Government’s review of the high street – headed up by television presenter Mary Portas – comes at a crucial time and must result in urgent action. Practical steps are needed to protect and promote our high streets so they remain attractive locations where businesses of all kinds can thrive. This cannot be left to chance. A proactive approach to managing our town centres would benefit customers, communities, retailers and other businesses. Priorities should include keeping business rates down, deterring crime and having good, affordable parking and public transport. It’s encouraging that not all regions are seeing a fall in retail premises; some have seen a net gain thanks to new stores opening. The priority must be protecting that growth and helping it spread to all parts of the country, boosting town centres and creating jobs.”

The Power of TV
Television’s Impact on the Status of Women
Research by Emily Oster
Emily Oster is assistant professor of economics at the University of Chicago Department of Economics

Turning on the television can be a simple yet influential way of improving a woman’s standing in rural India.
The growth of television in the developing world over the last two decades has been extraordinary. Estimates suggest that the number of television sets in Asia has increased more than six-fold since the 1980s, increasing from 100 million to 650 million. In China, television exposure grew from 18 million people in 1977 to 1 billion by 1995. In more recent years, satellite and cable television availability has risen dramatically. Again in China, the number of people with satellite access increased from just 270,000 in 1991 to 14 million by 2005. Further, these numbers are likely to understate the change in the number of people for whom television is available, since a single television is often watched by many. India has not been left out of the cable and satellite revolution: A recent survey finds that 112 million households in India own a television, with 61 percent of those homes having cable or satellite service. This figure represents a doubling in cable access in just five years from a previous survey.

Beyond providing entertainment, television vastly increases both the availability of information about the outside world and exposure to other ways of life. This is especially true for remote rural villages, where several ethnographic and anthropological studies have suggested that television is the primary channel through which households get information about life outside their villages. Most popular cable programming features urban settings where lifestyles differ in prominent and salient ways from those in rural areas. Anthropological accounts suggest that the growth of TV in rural areas has had large effects on a wide range of day-to-day lifestyle behaviors, including latrine building and fan usage.

In a recent paper, “The Power of TV: Cable Television and Women’s Status in India,” University of Chicago Department of Economics professor Emily Oster and Robert Jensen of the University of California, Los Angeles, explore the effect of the introduction of cable television in rural areas of India on a particular set of values and behaviors, namely attitudes toward and discrimination against women.

Although issues of gender equality are important throughout the world, they are particularly salient in India. In a 1992 article, Nobel Prize–winner Amartya Sen of Harvard University argued that India had 41 million “missing women”–women and girls who died prematurely due to mistreatment resulting from a dramatically male-biased population. The population bias toward men has only gotten worse in the last two decades as sex-selective abortion has become more widely used to avoid female births. More broadly, girls in India are discriminated against in nutrition, medical care, vaccination, and education. Even within India, gender inequality is significantly worse in rural than in urban areas.

Many characters on popular soap operas have more education, marry later, and have smaller families–all things rarely found in rural areas; and many female characters work outside the home, sometimes as professionals, running businesses, or in other positions of authority. By exposing rural households to urban attitudes and values, cable and satellite television may lead to improvements in status for rural women. It is this possibility that Jensen and Oster explore in their paper. In particular, they evaluate the effect of the introduction of cable and satellite television on a variety of measures of women’s status: autonomy, attitudes toward spousal abuse, son preference, and fertility. In addition, they explore the effects on education for children, which some authors have argued will increase when the status of women is higher.

Measuring the Power of Television
While television was first introduced to India in 1959, for the first three decades almost all broadcasting was in the hands of the state, and the content was primarily focused on news or information about economic development. The most significant innovation in terms of both content and viewership was the introduction of satellite television in the early 1990s. In the five years from 2001 to 2006, about 30 million households, representing approximately 150 million individuals, added cable service.

Soap operas are among the most popular shows on cable: The most popular show in both 2000 and 2007 (based on Indian Nielsen ratings) is “Kyunki Saas Bhi Kabhi Bahu Thi,” (Because a Mother-in-Law was Once a Daughter-in-Law, Also), a show based around the life of a wealthy industrial family in the large city of Mumbai. By virtue of the fact that the most popular Indian serials take place in urban settings, women depicted on these shows are typically much more emancipated than rural women. Further, in many cases there is access to Western television, where these behaviors differ even more markedly from rural India. Based on anthropological reports, this seems to have affected attitudes within India. Several respondents in one study thought television might lead women to question their social position and might help the cause of female advancement. Another woman surveyed reported that, because of television, men and women are able to open up more.

The research by Jensen and Oster differs from these mostly anthropological studies by providing a more quantitative analysis that measures how large an impact television has on the status of women. “It’s one thing to ask people if they think TV affected gender attitudes and behaviors,” explains Oster. “Even if they say yes, it’s quite difficult to say anything about magnitudes.” The authors also emphasize identifying causal effects by trying to ensure there aren’t any factors in their data driving both the expansion in access to television and changes in the status of women that would lead to the wrong conclusion that the former causes the latter.

The authors’ primary analysis relies on the Survey of Aging in Rural India. This survey includes roughly 2,500 women in 180 villages in India; they were interviewed once a year for three years in 2001, 2002, and 2003. These years represent a time of rapid growth in rural cable access. During the three years of the study, cable television was newly introduced in 21 of the 180 participating villages. The analysis in the paper relies on comparing changes in gender attitudes and behaviors between years across villages based on whether (and when) they added cable television. The authors used several measures of the status of women. They began with two measures of attitudes: attitudes toward beating and son preference. Attitudes toward spousal abuse were measured by asking women whether beating is acceptable in six possible situations (if a woman neglects children, is unfaithful, etc.), and counting the total number of situations in which she reports beating is acceptable. Son preference was measured by asking women who want more children whether they want their next child to be a boy.

Jensen and Oster found large effects of cable on both of these variables. Women who live in villages that introduce cable see large declines in both the number of acceptable beating situations and son preference; villages that do not introduce cable see no change. This change happens between 2001 and 2002 for villages that introduce cable in 2002, and between 2002 and 2003 for villages that introduce cable in 2003. In other words, the timing of the change in attitudes lines up with the timing of the change in cable access.

Indicators involving changes in actual behaviors, as opposed to attitudes, likewise suggest substantial improvement in women’s status. Jensen and Oster measured female autonomy based on responses to questions about participation in household decision making: does the woman make choices about obtaining health care, purchasing goods, do they need to get permission to visit friends and family, etc. Overall autonomy increased significantly after the introduction of cable and, again, this change happened at the same time as the cable introduction. The authors also found a decrease in pregnancy after cable introduction.

The effects of cable happen rather quickly, with changes observed in the first year following cable introduction. This is consistent with prior work on the effects of media exposure, which typically finds rapid changes–in many cases within a few months–in behaviors like contraceptive use, pregnancy, and building latrines. These effects are also large: between 45 and 70 percent of the gap in attitudes and behaviors between urban and rural areas are closed by the introduction of television.

One important question is whether some other variable affects both the expansion in access to television and changes in rural women’s attitudes and behaviors. For example, it is possible that villages that are becoming more “modern” are improving in attitudes toward women and also are more likely to adopt television. If true, this would call into question the causal effect of television on women’s status.
To test for this possibility, Jensen and Oster looked at whether there were improvements in any of the four status indicators before cable was adopted. They found none. “There’s no change before cable television is introduced and there is a sharp change after it is introduced,” says Oster. “And that’s what you would expect to see if cable was causing increases in women’s status.”

How Cable Television Affects Education
Research in economic development tends to indicate investments in children’s education and health care are greater when women have a bigger voice in the household. For instance, giving money to women may be better than giving money to men because women tend to spend that money on their children in ways that enhance their welfare. “If that is true, and if television comes in and improves the status of women, then it could have positive spillovers to children,” says Oster.

Attending school is one measure of children’s welfare, and the study found that school enrollment, especially among younger children, increases after cable television is introduced. There is also some evidence of a delayed effect. The impact on enrollment is stronger if households have cable for more than a year. Unlike the immediate impact observed on women, television could take longer to affect education because plans for schooling must be made well in advance and money must be saved for fees and other costs.

That simply turning on the television can improve a woman’s life as well as that of her children is particularly intriguing in light of the traditional and somewhat more complex approaches to promoting education and enhancing women’s standing in society. For instance, calls to “empower women” are often vague. Reducing poverty, building schools, and improving teacher quality in order to boost enrollment may be as difficult to accomplish as the problems they are attempting to solve. While cable television clearly cannot solve any part of these problems that is in fact related to an underlying structural problem such as poverty, the possibility that television can cheaply and quickly influence education and the status of women by changing women’s attitudes and behaviors offers significant promise.

“The Power of TV: Cable Television and Women’s Status in India.” Robert Jensen and Emily Oster. Forthcoming in the Quarterly Journal of Economics.

Financial crisis and reform: Looking back for clues to the future

Changes reaching far beyond the financial sector have followed every major US financial crisis that sparked an economic downturn.

December 2008 • Robert E. Wright

For the many global companies affected by the US business climate, an obvious question in the wake of the financial system’s recent upheaval is the likelihood and extent of impending changes in the country’s regulatory, political, and structural environment. History provides three clear lessons: first, reforms followed every major US financial crisis that led to an economic downturn. Second, the length and severity of the post crisis recession have historically been approximately proportional to the degree of change that follows the recession. Finally, the resulting shifts commonly extend well beyond the financial-services sector.

Mild recessions, like those of 1990–91 and 2001, have typically led to piecemeal regulatory reform (exhibit). Steeper downturns portended seismic changes, such as major political realignments and even revolution. (Scholars are just now recognizing the important role that the real estate bust of 1764–68—when land prices fell by half to two-thirds in about a year and thousands of Americans ended up in debtors’ prison—played in the imperial crisis culminating in the events of July 1776.) Similarly, the Panic of 1857 in the United States and the subsequent recession helped bring on the Civil War by exacerbating sectional tensions over slavery and states’ rights and helping the modern Republican Party to coalesce. During the Great Depression, some historians believe, the federal government averted rebellion thanks only to the extraordinary changes ushered in by the first New Deal.

Nothing comparably dramatic seems imminent, but this doesn’t mean that game-changing regulatory reforms are impossible. Already, the subprime-mortgage and liquidity crises have vastly increased the power of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), and the Treasury Department. While it’s difficult to predict what other shifts will transpire, the breadth of change that has historically resulted from financial crises is worth bearing in mind. The Panic of 1873 and the subsequent long recession, for example, helped spur labor and agrarian unrest. Similarly, the recession of 1893–97 invigorated Populism and Progressivism and paved the way for the turn-of-century Great Merger Movement, which created giant corporations such as U.S. Steel and International Harvester. The Great Depression gave rise to the Glass–Steagall Act (which separated investment and commercial banking for more than 60 years), the FDIC, the Securities and Exchange Commission, and Social Security.

 

About the Author

Robert Wright is an associate professor of economics at New York University’s Stern School of Business, where he teaches business, economic and financial history.