I can’t stand Ikea.
I don’t particularly mind putting flatpacks together. And it’s a great concept – nicely designed furniture that people can afford. I’d much rather have a house kitted out with Ikea products than any of the dreary stuff that other DIY chains knock out.
It’s just that I find shuffling around one of their warehouses on a weekend such a grim experience. Even if you go in for just one specific item, it still seems to take an aeon to get in and out of the place.
Where am I going with all this? Well, much as I find their shops depressing, I have to say that an interview with the company’s president in this weekend’s Sunday Telegraph cheered me right up…
Anders Dahlvig, president of Ikea, came out with one of the smartest business quotes I’ve read all year in this weekend’s Sunday Telegraph.
He was discussing the impact of the housing slump with interviewer James Hall. As Hall noted, many DIY retailers try to pretend that a housing downturn isn’t an issue. Their argument is that if people decide to stay put rather than buying a new home, they’ll simply spend more money on their existing house.
Dahlvig dismissed this with refreshing honesty. “Oh they [consumers] spend less. Overall consumption is always down, especially when the housing market is down.” Now Dahlvig is of course in the lucky position of running the market leader, so he can afford to be blunt about a recession – his rivals will suffer even more than Ikea does. But it’s his next comment that struck me as a real breath of fresh air.
“It is not a concern, as that is the nature of business. You have good times and bad. After sunshine comes rain. We have to accommodate that.”
This is nothing staggering. It shouldn’t take Einstein to understand that business goes through ups and downs. Economists even call it the business cycle. But to hear this kind of clarity amid the gibberish that most business people and politicians are spouting about the credit crisis, is infuriatingly rare.
You can’t eliminate the business cycle
Gordon Brown said he’d eliminated boom and bust. We all knew that was rubbish, but everyone went along with it because he said it in the middle of a boom, and no one wants to believe that a boom is going to end.
That’s the trouble. You can’t eliminate the business cycle. You might be able to tame it a little – you might be able to turn “boom and bust” into a calmer, “rise and fall” sort of motion. But even that might not be possible, given human nature. Because to get rid of the bust, you also have to get rid of the boom. And as booms make everyone feel rich, no one wants to do that.
So we all pretend that the boom’s not a boom. We come up with increasingly ridiculous justifications to maintain this pretence. House prices are rising because there’s too little supply and too much demand. And if credit does have anything to do with it, well, that’s OK, because we’re now in a world of permanently low risk, and permanently low interest rates.
Maybe if we all just accepted Dahlvig’s point – that ups and downs are the nature of business, and life for that matter – then we wouldn’t be so terrified of booms ending. We’d take care to prepare ourselves for the harder times while the good times were still here. If we accepted that, we wouldn’t strive so desperately to keep the booms going way past their sell-by date – and in turn, the ensuing bust wouldn’t be as brutal.
Why the small business squeeze is bad for us all
Of course, it’s too late for this cycle. And while the Ikeas of this world can ride out the hard times with a degree of equanimity, it’s much tougher for your average business person. In the first three months of 2008, profit warnings hit a seven-year high, says Ernst & Young. And life for small businesses in particular is tough.
Late payment is becoming a big issue for small businesses, says the British Chamber of Commerce. Just as the banks are tightening up, so big corporates are also paying less promptly and turning the screw on their suppliers. The Federation of Small Businesses reckons that 10% of business failures are caused simply by late payments resulting in a cashflow crisis, reports The Times.
Nearly three-fifths of private sector employees work for small businesses. Anyone still predicting that the UK can ride out the credit crunch without a rise in unemployment should take those figures into account.
Turning to the wider markets…
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On Friday, the FTSE 100 closed down 69 points at 5,895, as US conglomerate GE warned that it had been hit by the slowing US economy – something which won’t have surprised MoneyWeek readers, as our tipster Paul Hill recommended selling out of the stock a couple of issues ago (see here for more: Excellent firm, but overvalued. Banks were among the main fallers as GE’s gloomy outlook raised more fears for the global economy.
Across the Channel, the Paris CAC-40 lost 61 points to end the day at 4,797. And in Frankfurt, the DAX-30 fell 100 points to 6,603.
On Wall Street, US stocks took a severe hit after the disappointing numbers from GE. First quarter profits fell for the first time since 2003, against analysts’ expectations for a gain. Profit for 2008 is now expected to rise by no more than 5%, against earlier forecasts of at least 10%. The Dow Jones dived 256 points to end at 12,325. The broader S&P 500 fell 27 points, to 1,332, while the tech-heavy Nasdaq slid 61 points to close at 2,290.
In Asia, Japanese stocks followed the US lower, with the Nikkei 225 closing 406 points lower at 12,917.
Crude oil was little changed, trading at around $109.82 this morning, while Brent spot was trading at $108.07.
Spot gold was trading at around $920 an ounce this morning. Platinum eased back to around $1,954, while silver was trading at $17.42.
Turning to forex, sterling was trading at 1.9723 against the dollar, and at 1.2492 against the euro. The dollar was last trading at 0.6339 against the euro and 100.62 against the Japanese yen.
And this morning, Philips, Europe’s largest consumer electronics manufacturer reported a larger-than-expected decline in first quarter profits as prices and sales of of flat-screen TVs fell.
Our recommended article for today…
The tax haven of Singapore
– J.G. Farrell explains how Singapore became prosperous and why it will stay that way. Singapore has always been a big trading centre, but recently – with the crackdown on European tax havens – it has become a place to store capital and a hub of financial services. To understand why it’s growing at a rate of 30% per year, read: The tax haven of Singapore