The UK Retail Sector during Financial Crisis - Dissertation Example

This study is a qualitative investigation of the role of the United Kingdom‘s protectionist measures in the performance of the British retail sector during the recent financial crisis. The key research objectives addressed include: the description of the British governmental policy towards the retail sector; the description and critical analysis of the performance of UK’s retail sector during the global financial crisis; identification of the link between state policy and retail sector performance during the crisis; identification of the problems and challenges that emerged in the UK retail sector experience as well as the pitfalls in state policy during and after the crisis; integration of the previous variables in the analysis of basic trends in the UK retail sector; development of solutions for the problems and challenges cited so that a better model of state policy, protective measures and regulation could be achieved. The study employed descriptive and critical account of the data gathered, using secondary sources extracted from extant body of literature on the subject. The data are used in an extensive review of literature and as comprehensive resources that informed the analysis and the discussion of the study. While the findings are not definitive, this study's investigation was able to provide suggestive details supporting the positive relationship between the UK protectionist measures and the performance or the survival of the retail sector after the crisis struck British shores. The impact of the financial crisis especially on the future developments and trends in the UK retail sector was also identified. This was based on the expected response on the part of the policy networks and the industry decision makers. Several problems were also cited both on the part of the government and its policies; and, on the side of the retail industry. The study was able to propose possible solutions and modifications to existing policy attitudes towards the retail sector based on t he lessons learned from the financial crisis experience. INTRODUCTION The retail sector is an important component of the United Kingdom’s economy. A prominent part of the industry is the British Petroleum, ranked second in the European continent and the biggest industrial incorporation in the UK. The sector also include the vibrant mechanical engineering and manufacturing sectors, which are both important in the British export output (Hiles, 2010, p.39-46) Then, there is the financial institutions such as investment firms and the banking institutions, which serves one-tent of the global financial requirements. The aggregate turnover of the entire retail sector accounts for a significant portion of the country’s gross domestic product (GDP). The sector ranks fourth in the global trade market. It is a leading player in the European Union and that it is one of the largest industries in the whole of Britain. It is not surprising, hence, when the British government provides it with special protective measures because any instability can result to a crippling effect to the entire economy (HM Treasury, 2009, p.23-25). This is particularly highlighted during the series of financial crises that hit the world in the past decade. For instance, when the 2008 financial crisis that originated in America spilled over across the globe, the British consumption experienced some disturbance. The retail sector was hit as the economy immediately contracted by 0.5 percent (UK Parliament, 2009, p.139). The consumer attitude and purchase behavior showed signs of dampening, which can affect the sector in the next few years or so. In a recent survey by Data Monitor, it was found that 90 percent of the British consumers believe that the country is in recession and that 47 percent reported a worsening of personal financial situation (Market Watch, 2009, p.73). The report found that majority of the consumers is in the process of making changes to their lives and purchasing behavior and that previous purchasing patterns can only be maintained once economic conditions improve. If this trend is going to continue, then the economy is headed for trouble. A UK Parliament (2010) report released the following statement a year after the crisis struck: The financial crisis struck, it has split over into the real economy fast with all key economic key indicators pointing towards recession. A combination of falling house prices, high inflation, rising unemployment and shrinking real disposable incomes has further provoked a sharp slowdown in consumer spending with retail sales down on a like-for-like basis in seven of the last eight months. The claimant count has now increased for the ninth successive month and considering the labour market lags the economy by around six months, this will put further downward pressure on house prices and consumer spending, with the worst still yet to come (p.139). The financial services suffered a more significant damage. The crisis was responsible for the very first bank run in Britain since 1866 and almost collapsed the country’s banking system. Because of the crisis’s impact on the retail sector, the following developments emerged: 1. the UK GDP contracted by at least 4 percent in 2009; 2. the country experienced its first recession in 17 years and its worst in 60 years; 3. the retail price index is expected to fall by 1.7 percent starting 2009; 4. the country was threatened with deflation; and, 5. unemployed reached 3 million mark, a 60 percent increase (Hodson and Mabbett, 2009, p.1042) There is a widely recognized claim that without the government involvement and protection, the industry could have suffered a bigger setback, inflicting a more severe damage to the economic well being of Britain. This is supported by the existing research and investigations on the causes of the recent financial crisis. It was found that financial market liquidity played a central role in the onset of the crisis. This position was depicted in the study conducted by Christopher Martin (2010) in the case of the United Kingdom, wherein the determinants of financial market liquidity were determined as well as the impact of the measures of global imbalances. It was found that the increase in the financial liquidity from 2001 to 2007 was due to large and persistent current account deficits and loose monetary policy, which led eventually led to the crisis (p.456-457). Martin argued that effective policy response to the buildup of liquidity might have prevented, or at least, diminished the impact of the crisis (p.457). This study highlighted the contribution of regulation and protectionist measures on domestic industries such as retail. This is now the concern of this study. Is this claim valid? This question is finally addressed in the investigation of the research statement, developed in this study’s research proposal. The statement explained that this study identifies and explores the UK’s retail sector and its performance during the financial crisis, while also keeping in view, the government’s efforts to sustain the accomplishments of this sector. Research Aim and Objectives The main aims and objectives of a research play a significant role in ensuring the success of gathering and analyzing information during the research process, as they provide the basis and the framework of the investigation and data gathering. It also provided the opportunity to avoid wastage of time and resources. The researcher has designed this part in the research proposal with emphasis and attention, and the plan is typified by efforts to accomplish these goals. Based on the identified aims, the researchers are able to search for the key factors responsible for the retail sector’s success, leading to an authoritative and comprehensive analysis in the discussion section of this study. Thus, the researcher will treat the global financial crisis as the peak point of the research, and will observe the retail sector’s performance during this period. Specifically, the researcher will seek the actions of the government, which served as protective measures for this sector during the crisis. Thus the main objective is to determine the beneficial role of the government as well as the aid it was able to provide in the survival of the retail sector. Also, it aims to recognize any pitfalls in the process so that possible solutions can be identified making the British model better and enhanced so that other governments could gain insights in their own drive to protect their own retail sectors as well. For these purposes, the following secondary objectives were pursued: A description of the British governmental policy towards the retail sector; The description and critical analysis of the performance of UK’s retail sector during the global financial crisis; Identification of the link between state policy and retail sector performance during the crisis; Cite the problems and challenges that emerged in the UK retail sector experience as well as the pitfalls in state policy during and after the crisis; Integrate the previous variables in the analysis of basic trends in the UK retail sector Propose solutions for the problems and challenges so that a better model of state policy, protective measures and regulation could be achieved. The main thesis of this study is that the government involvement, particularly, its protective measures provided to the retail sector has positive impact especially in times of financial turmoil. It has cushioned a number of industries that composed the sector and could have resulted in better performance, as the existing protective policy was able to cushion the crisis’ impact. This argument made a type and degree of protectionism imperative particularly amidst the backdrop of an increasingly integrated global economic system, wherein the economic disturbance from another country could easily and swiftly spread across the globe. The study describes the retail industry in the UK and provides a documentation of its development. An important variable here is the description of the evolution of the British policy towards the retail sector. This researcher found empirical evidences that will serve as sources for the manner by which the retail industry and the governmental policy trends will be analyzed and compared across time periods. There is now a call for more research on the retail markets and this study is our answer to it, with our specific emphasis to the regulatory regime and the protectionist measures undertaken by the UK government. According to Letsas and O’Cenneide (2011), regulatory policy with serious ambitions in the retail markets must stand ready to identify and respond to pro-cyclical shifts in business and investment patterns, to where trust is being placed or being misplaced, and to where stress is being placed on particular rules, particular industries, and particular products or services (p.422). It must be underscored that this study is not definitive. What this means is that the researchers describes and critically analyses the issue and information in the UK setting only and with a limited number of variables involved. This is further aggravated by the fact that, presently, there are still very little authoritative data available that covered the entire crisis period. Undertaking a more comprehensive investigation, which will most certainly lead to more definitive conclusions, would take a large amount of time, considering the sheer amount of data that have to be awaited until they are finally released by the government and the retail sector. Nonetheless, the researchers are of the opinion that this study is suggestive and could contribute immensely to the body of literature on this subject. Structure This study is divided into four main sections. The first reviews the extant corpus of literature on the subject. This is crucial in the study because of its descriptive nature. Here the sector and policy paradigms are explored both from the theoretical and practical accounts as documented and examined by numerous research and studies. The Literature Review section outlines three categories of previous related studies on the subject that contain concepts and information to be used in this paper. The first are those concerning state policies that constitute the identified protectionist measures for the retail sector. The second body of literature is consisted of research previously undertaken investigating the performance of the retail sector. Additional elements were also included such as the content of the existing research say about the trends in the retail sector in the UK, presently as well as the documentation of the major challenges in the UK retail industry as a result of the financial crisis. The examination of the extant literature on the subject is more of a background and related section to the secondary data to be examined in the discussion and analysis section since this study’s research methodology is qualitative. Theories may be discussed but not in the context of formulating a theoretical framework since, as Lichtman (2009) explained, the research objective is to describe, understand and interpret and not to test hypotheses (p.127). The second section introduces the methods used in the investigation, which is qualitative in nature. This section explains why the research framework is also a descriptive method of inquiry. In addition, the section also detailed how the research method verified the hypothesis made in this research. Data gathering was also explained, which involved data taken from secondary sources exclusively - some consisted of documents released by the government and the retail sector, while the rest were derived from books, journals, among other documents and resources that are available and could certainly be verified. An important component of the data gathering strategy is the development of a reliability test, designed to evaluate the validity of a resource. Part of this test is a triangulation method, wherein, a source is examined and compared with at least three other source materials for corroboration. The collected information will be presented in the form of case studies and discussions. The third section, discusses the findings of the study. They are similarly structured in an effort to present a coherent system of the achievement of objectives. As such, there are six sub-sections, corresponding to the six objectives that are previously outlined. For instance, the first sub-section entails the description and analysis of the British government’s policy towards the retail sector. Each section is typified by an analytical as well as critical overview of their respective content and link to the theme of the study. In addition, this section also contains case studies of the experiences of specific retail organizations such as British Petroleum and TESCO, among others. An important element of this section is the future trends in the retail industry. After the final crisis , there was a wide sentiment both from the public, industry and policy networks that calls for closer government involvement. This section will discuss the positive and negative effects of this phenomenon. For instance, there are the expected changes in the dynamics of competition as well as the regulatory policies that would cover them in the future. This study will examine the potential impact of the government attitude towards competition, which was cited in a report by the Parliament as facilitated by a plentiful supply of inexpensive wholesale funding which gave rise to financial instability (UK Parliament Competition, p.217) A conclusion will finally be drawn in the fourth section, including a number of recommendations and suggestions (i.e. themes and subjects for further research). References Hiles, A 2010, The Definitive Handbook of Business Continuity Management. John Wiley & Sons. Hodson, D and Mabbett, D 2009, "UK Economic Policy and the Global Financial Crisis: Paradigm Lost?” Journal of Common Market Studies, 47(5): p. 1041-1061. Lichtman, M 2009, Qualitative Research in Education: A User's Guide. London: SAGE. Letsas, G and O'Cinneide, C 2011, Current Legal Problems 2010, Volume 63. Oxford: Oxford University Press. MarketWatch 2009, UK consumers: shopping for value, but reluctant to compromise on quality. London: MarketWatch. Martin, C 2010, Financial Market Liquidity and the Financial Crisis: An Assessment Using UK Data. International Finance, 13(3), p. 443-459. Plunkett, J 2008, Plunkett's Retail Industry Almanac 2009: Retail Industry Market Research, Statistics, Trends and Leading Companies. Houston, TX: Plunkett Research Ltd. UK Parliament: House of Commons 2009, Risk and reward: sustaining a higher value-added economy, eleventh report of session 2008-09, Vol. 2: Oral and written evidence, Volume 2. London: The Stationery Office. UK Parliament House of Commons 2011, Competition and choice in retail banking: ninth report of session 2010-11, Vol. 2: Oral and written evidence, Volume 2. 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