MARKETING FOCUS: The fruits of Labour

As Tony Blair sets out his stall for the general election, marketers are asking what a Labour victory will cost, Dominic Midgley reports

As Tony Blair sets out his stall for the general election, marketers are asking what a Labour victory will cost, Dominic Midgley reports



No one has ever played more effectively on the country’s distrust of

Labour governments than The Sun when, on election day in 1992, its front

page read: ‘If Kinnock wins today will the last person to leave the

country please turn out the lights.’



Now securities house Robert Fleming has come up with the broker’s

equivalent of that apocalyptic scenario. In its report, The General

Election and the UK Market, Fleming’s research outlines the radical

agenda it believes lurks behind Tony Blair’s unthreatening new image.



In the Labour manifesto according to Flemings, no one but the very

lowest paid escapes Blair’s hidden agenda to change the face of Britain

(see box).



Such measures could cause a significant shift in the balance of power on

the high street and raise intriguing questions for marketers. With a

transfer of spending power from the better- to worse-off, some analysts

point to a rise in the fortunes of discount chains, like Kwik-Save, at

the expense of more up-market stores, like Sainsbury’s.



So, should relatively expensive household names, such as House of Fraser

and Next, be sharpening up their marketing in anticipation of challenges

ahead? Does a change in government affect the way they market their

brands? Can the DIY companies expect buoyant demand driven by a housing

boom funded from council house receipts? Should brown and white goods

manufacturers be preparing for a return of 80s-style consumption as

confidence returns?



John Richards, retail analyst at NatWest Markets, is cautious: ‘There

has been no overt promise to soak the rich at this time, but one would

expect the policy mix to throw more money at the lower paid, and they

are more likely to spend any additional money they get,’ he says.



‘It will affect spending patterns to a relative extent, but I don’t

believe it will necessarily be measurable.’



He claims any prediction of a shift in spending from up-market to down-

market outlets is ‘simplistic and condescending’, arguing that there is

no reason why those with increased liquidity shouldn’t trade up, rather

than line the pockets of the discount sector. Would shoppers at Kwik-

Save stay loyal to the store even if they had an extra pounds 50 per

week to spend?



Potentially more significant is the introduction of a minimum wage.

‘This is an interesting one,’ says Don Corrie, senior economist with the

Institute of Policy Research. ‘I would have thought it would definitely

be introduced at the lower end of the pounds 3.50 to pounds 4 range,

partly because last year’s New Earnings Survey showed there were many

more low-paid people than we previously thought.



‘From the Labour angle, that would mean more people would benefit, but

it would have a bigger effect on the labour market.’



It is the latter point that the government is certain to attempt to

capitalise on during the election campaign, raising the spectre of

redundancies and inflationary pay rises as workers just above the

minimum rate fight to maintain their differentials.



In the retail sector, however, it could prove a boon for high street

chains. ‘Tesco would love a minimum wage because they already pay well

over pounds 4 an hour,’ says Corrie.



Officially, the supermarket giant has a more measured response. In a

carefully worded statement it says: ‘Tesco is not opposed in principle

to the concept of a minimum wage, provided that we are fully consulted

about how such a policy would be introduced.’



It is not hard to see why. Tesco boasts it has the best rates of pay in

the grocery retail industry. The majority of its checkout staff earn

pounds 4.27 per hour, while general assistants earn pounds 4.06.



The people who will feel the pinch are its competitors, the low-margin

discount chains who, some expect, will benefit from increased disposable

income among their customers.



Steve Boyfield is managing director of TJ Hughes, a16-strong retail

chain in the Midlands and north-west. ‘It won’t affect us greatly

because we are currently at the upper end of that range and by the time

legislation was introduced we’d probably be above it. But there are

quite a number of retailers paying below pounds 3.50 at the moment.



‘Independents tend to be at the lower end and a number of discount

chains are paying pounds 3.30 to pounds 3.40. Paying pounds 3.50 would

not be a problem, but pounds 4 would be a major increase on costs.’



Richards agrees: ‘If it comes in significantly above pounds 4 it would

be a major problem.’



Flemings says most retailers expect Labour to introduce a minimum wage

of around pounds 3.80 to appease the unions and suggests the companies

most likely to be affected are smaller outfits like Weston and Philip,

with Asda, Argyll, Iceland and Kwik-Save suffering only marginally.



Another potential blow for retailers, according to Flemings, is Labour’s

idea of a carbon tax - a levy on fuel to discourage car use. For an

industry so reliant on road transport for distribution this will mean an

unwelcome increase in overheads.



It is doubtful, however, that Labour could do much more in this

direction than the present government has done. Under Chancellor of the

Exchequer Kenneth Clarke, there have been successive rises in petrol

duty of 5% a year in real terms and, according to Don Corrie, further

increases on this scale are planned annually until the year 2000.



Meanwhile, there are at least two Labour policies which promise to

promote spending. The first is the release of up to pounds 6bn in

receipts from council house sales, which are largely ring-fenced under

current legislation.



If local authorities ploughed this into social housing it would provide

a valuable fillip for the construction industry and, with the extra jobs

and increase in consumer spending that would accompany them, this could

only be a boost for retailers. Flemings concedes that DIY and home

furnishing stores could expect to do well.



A second possible benefit of a Labour government might be an improvement

in the elusive ‘feel-good factor’. This could come from two directions:

improved job security and increased trust in the welfare state.



If Labour is able to re-assure consumers that the state will help

protect their futures, then they may spend more confidently. In the

current climate, more consumers feel secure putting disposable income

into pension schemes and health insurance than buying high street goods.



Labour has drawn up plans to tighten up on the rules surrounding unfair

dismissal and intends to do more for part-time workers, who represent

the biggest growth area in the employment market but who have little

protection at present.



‘People are worried by job insecurity,’ says Corrie. ‘If you introduce a

bit of regulation you make people feel more secure and spend more.’



Consumer trends consultant and style guru Peter York says Conservative

policies that actively make it easier to dismiss staff are at the root

of employee unease: ‘If people thought they were not vulnerable to

swingeing cost cuts then they may well spend more freely. That would

have a far greater impact than any changes in tax levels.’



In the short term, this could lead to a mini-sales boom, with emboldened

consumers splashing out on high-ticket items like brown and white goods,

making purchases they have been delaying for years. In the long run, it

could even help revive the housing market as those that have been scared

off by high interest rates and plunging prices gain confidence.



But don’t get too excited - consumer confidence will never get back to

where it was in the 80s. ‘Nothing could bring it back’, says York,

explaining that the sales boom was fuelled by two factors: ‘an

exceptional wall of credit and incredibly innovative retailers’.



Retailing in the 90s is characterised by cutting costs and streamlining

distribution. ‘There’s no inventiveness, no glamour - we have become a

nation of boring shopkeepers giving no inspiration to spend’, he says.



It would be ironic if it is a Labour Government that puts the glamour

back into retailing, and clearly, Flemings takes a highly sceptical view

of Blair’s good intentions. As one analyst says: ‘It has made reasonable

assumptions if you don’t trust politicians but, if you believe New

Labour is different from Old Labour, it hasn’t.’



Additional research by James Curtis



Britain in the pink



What would the consumer society look like under Labour?



* Middle England could be hit by a steep rise in the standard rate of

Income Tax, from 25p to 30p in the pound, in return for a 2.5% cut in

VAT to 15%, as Labour seeks to shift the tax burden from indirect to

direct taxation.



* The existing top rate of 40% would take effect at around the current

level but a new top rate of 50% would be introduced at around pounds

35,000.



* Labour would sign up to the Social Chapter and a national minimum wage

of between pounds 3.50 and pounds 4 per hour would be introduced.



* The introduction of a carbon tax on fuel, to discourage car use, would

hit out-of-town retailers hard. But would these draconian measures have

more impact than anything done or planned by the Tories?



* Labour would release up to pounds 6m in receipts from council-house

sales, ring-fenced under current legislation. If it results in more

house-building, this could promote spending and benefit DIY retailers.



* Tighter rules under Labour concerning unfair dismissal and greater

security for part-time workers could create a ‘feel-good factor’.

Emboldened consumers may spend more on high-ticket goods and gain

confidence in the housing market.



Source Robert Fleming



Winners and losers under Labour



Tony Blair has everything to prove in the run up to the general election

according to research conducted for Marketing by Audience Selection.



Better or worse off under Labour?



Of the 1009 people questioned, one-third were undecided whether they

would be financially better or worse off under a Labour Government.



Better off overall?



Labour can take heart from the fact that 37% thought they would be

better off, with 29% thinking they would have less to spend.



Men vs women



More men think they will be better off than women and there is most

confidence amongst the youngest and oldest age groups. In the 15- to 24-

year-old group, 41% said they would be better off, compared with 19% who

thought the opposite. Just over a third of pensioners think they will

have more to spend, but 40% are undecided.



Social revolution?



Blair is not achieving a marked social revolution, with the richest

showing least confidence of wealth under Labour and the poorer bullish

at having more money. In the AB group 29% said they would be better off,

compared with 44% who thought the opposite. The inverse is true for DEs:

44% think they will have more cash and 23% say not.



------------------------------------------------------------------------

Job security

There is a mixed perception that Labour may boost job security

                    better off    worse off    undecided

Full-time workers       35%          37%          28%

Part-time workers       45%          20%          35%

Unemployed              38%          24%          38%

------------------------------------------------------------------------



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