How is the change of government going to impact trading?

AlixPartners director Dan Murphy says he agrees with Next boss Simon Wolfson that the negotiations that led to the Conservative and Liberal Democrat coalition are largely irrelevant. The critical issue for retail is what the first post-election Budget will contain.

Murphy explains the key questions this Budget needs to answer in order for retailers to plan effectively. He says: “Firstly, what is likely to happen with inflation, and where might interest rates go in the short to medium term? These factors will directly affect consumers’ ability to pay their mortgages, household bills, and other debts.

“Next, ask where will the inevitable tax increases come from, and how will these affect consumers’ disposable income?

“And finally, we need to understand the scale of cuts in the public sector to see how many people are likely to be moving from paid employment to welfare.”

In the meantime, AlixPartners advises its retail clients to embark on a process of constructive preparation. Murphy explains: “Retailers should build a worst case business plan to reflect a potential 15% decrease in top line, and look at what this would mean for key ratios like cash, fixed and variable costs, and working capital; then ensure that effective plans are put in place to address such a decline, should it happen.”

However, Murphy’s final point is positive. He was working for Next during the 1990-92 recession when its share price dipped to 9p. Next survived that period and went on to become one of our best-performing retailers. He says other retailers that plan properly for these difficult periods should be capable of similar long-term success.