What has happened to the banking system in the UK and across the world over the past week is utterly unprecedented, and what’s frightening is the incredible speed with which the picture is changing. The shockwaves in retail are going to be massive and some of the most forceful are coming from Iceland.
The grip this tiny country – which has a population smaller than that of Bradford – has over UK retail has long raised eyebrows. Names like Baugur, Kaupthing, Landsbanki and Glitnir have become part of the retail fabric.
Now the Icelandic economic miracle is unravelling and – as probably the highest profile investor on the high street after Sir Philip Green – the spotlight has inevitably fallen on Baugur. But the real issue is the Icelandic banks, which can’t give any assurances to their customers. With the Icelandic government nationalising most of the country’s banks this week, they no longer control their own destiny and the outlook for the companies they invest in or lend to is hugely uncertain.
While Iceland may be the most extreme example, the remarkable bail out of the UK’s banks this week will also have an impact on retailers. The Government’s£50 billion rescue package was the right thing to do, but it will inevitably usher in a new era of prudence in the banking world – and that’s bad news for retailers that might be going cap in hand to the banks after Christmas.
Whatever happens, the shape of retail will change dramatically. The combination of a chastened banking sector and the increasing caution of credit insurers will push more retailers over the edge in the new year, including some big names.
The banking crisis has been caused by banks diversifying into a mind-boggling range of new products and financial instruments, but the new world order is likely to see a renewed focus on the straightforward business of lending money to credit-worthy businesses and individuals.
Retail will have to change too. It won’t be about the sort of financial engineering we’ve seen over the past decade. It’s going to be about persuading consumers to buy your products again. That’s no bad thing.
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