Combatting the Financial Crisis

For my final post, I want to look at the success stories (in a business sense) following the financial crisis, and look into how companies have combatted the recession and in doing so have increased shareholder wealth.  

The consumer shopping trend that optimised the recession in the UK, was the flocks of people swapping supermarket giants such as Tesco for the bargaining power of German-based retailers Aldi and Lidl (Wood, 2011). The trend has been dubbed the “Aldi effect” and has led Aldi to significant increases in profits where consumers changed to “recession mode” to cut their spending (Wood, 2011). So how did retailers like these combat the recession, and in doing so see profits surge? Better still, did they even need to change their strategies to attract new customers?

In a word, No! Retailers like Aldi have always adopted a ‘no frills’ approach whereby customers don’t need to spend masses of cash on their weekly shop. In a way, the recession was made for them. Their previous image of cheap and unappealing products, which was purely down to their discounted pricing, was seen post-recession as an ideal way to spend less. Four years later, in 2015, Aldi announced they would be expanding their store portfolio by introducing 70 new stores and recruiting over 5,000 employees in a further attempt to break into the big four (Tovey, 2015). Aldi has proved that the recession has not been so terrible for everyone and have come out shining in a time when it seems every major company is seeing reduced profits leading to increase shareholder wealth.

On a similar level, the same can be said of UK based organisation Sports Direct. A company who have seen profits surge by 40%, whilst other high street retailers were struggling profoundly (Neville, 2013). This, led to huge bonus payments for its staff and the image of an employee centric company. Oh, how far from the truth this really is! 

Sports Direct is controlled by Mike Ashley with his 64 percent share, a company he founded (BBC, 2013). The company has come under severe criticism for its business operations, and its staffing methods of employing the majority of staff on zero-hours contracts (O’Connor, 2015). Despite being a major success story of the recession, with its bargain based product lines, they have treat their employees horrendously. From a personal standpoint, I have friends who were previously employed at the company and they have discussed their dismay of their zero-hours contract and how they often go weeks without work. Unlike Aldi, who have seen profits in a justified manner, Sport Direct have been successful for its demanding approaches to cutting costs and mistreatment of staff. Mike Ashley is known for being a shrewd business strategies has found criticism and hatred in his ownership of Newcastle United FC for his tight (at times to tight) controlling methods. Of course, business is not a popularity contest, and in applying these methods has led to increased shareholder wealth, but you surely have to bear in mind the consequences your actions have on others.         

I have researched two retailers who have both combatted the recession, who similarly have employed bargained products to attract customers. Both have always been renowned for providing products that don’t stretch consumer budgets, and have stepped up their game where others have been slow to react. However, concentrating on Sports Direct, they have done so in a poor manner from an ethical viewpoint, but from a business front, brilliantly! 

Reference List

BBC (2013). Mike Ashley sells £100m stake in Sports Direct. Retrieved from: http://www.bbc.co.uk/news/business-21585456

Neville, S. (2013). 2,000 Sports Direct staff to receive £100,000 bonus after record profits. Retrieved from: http://www.theguardian.com/business/2013/jul/18/sports-direct-staff-bonus-profits

O’Connor, S. (2015). Sports Direct tussle offers test case for UK’s zero-hours workers. Retrieved from: http://www.ft.com/cms/s/0/af172ae6-ac90-11e4-9d32-00144feab7de.html#axzz3Zg2ksdQ1

Tovey, A. (2015). Aldi to open 70 more UK stores and recruit almost 5,000 staff. Retrieved from: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11389594/Aldi-to-open-70-more-UK-stores-and-recruit-almost-5000-staff.html

Wood, Z. (2011). Aldi-effect is back: spending squeeze lifts discounter into profit. Retrieved from: http://www.theguardian.com/business/2011/oct/04/aldi-effect-back-discounter-profit

Wood, Z. (2011). Cash-strapped Britons flock to discount stores Aldi and Lidl. Retrieved from: http://www.theguardian.com/business/2011/feb/01/retail-industry-discount-stores