It is almost a year since the much-publicised collapse of the Farepak Christmas hamper scheme and still the fallout is being felt across the sector. In August, a campaign was launched calling for ex-Farepak boss Sir Clive Thomson to lose his knighthood, with an e-petition on the number 10 Downing Street web site saying it is “morally wrong for him to keep it”.
It followed widespread public outcry after Farepak’s 150,000 customers each lost hundreds of pounds when the company collapsed. The Park Group, by far the largest player left in the Christmas savings club market, recorded turnover down 30 per cent as a direct result of the nervousness. These figures would suggest the industry is in crisis. And with consumer confidence so low and credit often easily available, is there a viable future for Christmas savings clubs?
Park Retail managing director Gary Woods is confident that there is not only a viable, but a bright future for the group’s hamper and voucher schemes. “Yes of course there’s a future in it,” he says. “Turnover is down, but there is a substantial business. We still have 400,000 customers on our books and a turnover of£160 million,” says Woods.
Government intervention followed Farepak’s collapse, because people demanded to know why parent company European Home Retail was able to utilise its customers’ savings to bankroll other failing divisions of the business. The Department for Business Enterprise and Regulatory Reform (DBERR) is talking to businesses about overhauling their business models to ensure consumers are protected. A new industry watchdog, the Christmas Pre-payment Association (CPA), has been launched and established an industry code of practice. And the Office of Fair Trading launched its “Sav£ Xmas” campaign in June. The campaign highlights the pros and cons of various schemes, from saving with banks to participating in Christmas clubs with local shops. Despite an unblemished record and a relatively robust balance sheet, Woods said Park realised it needed to do something to reassure its customers they could save with confidence.
The group, whose brands include Park Christmas Saving and Country Christmas Savings Club, has been talking to DBERR to agree a new business model. “We traded for 40 years faultlessly – we believe our customers’ money has always been safe. But at the end of the day both ourselves and the DBERR recognised that there would be a lack of confidence,” says Woods.
Agents will now pay money directly into The Park Prepayments Trust, which is managed by three trustees, two of which will be independent. The company can only withdraw money with permission of trustees and for purposes previously agreed.
In the wake of Farepak, several savings schemes have been established promising security and peace of mind. Argos launched a Christmas Savings Club in February and Farepak’s banker HBoS has launched a Christmas savings account through Halifax.
Argos says it chose to launch its scheme because many of its customers were hit by Farepak’s collapse, as well as the demise of Family Hampers the year before. Speaking at the time of the launch, Argos managing director Sarah Weller said: “As the number one redeemer of existing multi-retail vouchers, Argos is by far the most obvious retailer. We already run one of the UK’s most successful storecards so we have valuable experience in handling customers’ financial needs.”
Members can save a minimum of£5 a transaction and up to£500 in total. They can earn up to£13 on savings of£250 – a rate of 5.2 per cent.
The Club is being tested in Greater Manchester, the Northwest and the Northeast this year and is expected to launch nationwide next year.
Although much derided for failing to honour Farepak customers savings, HBoS says customers would have peace of mind that the Halifax name was behind the new account. Aimed at low income households, savers can open an account with a minimum deposit of£5 and a minimum of£5 a month. When the account concludes in October savers can take their savings in either cash or high street vouchers.
Argos felt there was still a real appetite for savings schemes, despite credit often being very easily available. “One of the key motivators for joining a Christmas savings club is the fact that money is not accessible and is kept out of the way and protected until they need it at Christmas. Credit can be spent at any time,” says an Argos spokeswoman. Woods agrees that savings schemes such as these are needed by many who struggle to avoid debt at Christmas without them.
Argos says it carried out research that showed that many consumers are wary of traditional agent-led saving schemes, there was a significant interest in an Argos Christmas Club. However, Woods believes that despite credible new players such as Argos and HBoS entering the market there is a space for the agent-model associated with Farepak. “We’ve shown our scheme is fun, sociable, easy and reliable. We are confident a lot of people will come back.”
The group commissioned market research consultancy Andrew Irving Associates to poll 250 former customers, who left following the Farepak incident. The survey found that 66 per cent said they will save with Park in future. “This gives us a lot of optimism for the business,” says Woods. “If you talk to customers that left, they say are missing it – they are concerned about getting into debt. A lot will come back for Christmas 2008.”
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