Month: September 2021

The rise and rise of the subscription economy…

You may use it for beer or bread, for razor blades, watching films or even for the simple act of reading books on Amazon. The subscription economy is something that has taken a hold on a large and growing portion of the population. It used to be said that Britain was a nation of shopkeepers. Have we since become a nation of subscribers?

In case you have not heard the term, what is the subscription economy? Simply put, it is the network of consumers paying a fixed monthly price for a product they know they are going to keep using. If you know you are going to keep shaving, or you know that you are going to keep watching films and reading books, then why not pay a simple monthly subscription that takes care of our needs? It sounds easier than buying the razor blades or the individual films or books as and when you need them.

Unsurprisingly, with so many people stuck at home over the last eighteen months, the subscription economy has boomed. The latest research from Barclaycard showed that it grew by almost 40% in the UK last year, and is now worth a whopping £323m per annum.

The research throws up some other interesting facts:

Almost two-thirds (65%) of UK homes are currently signed up to a subscription service, with an average of seven subscriptions per household
The average spend per individual is £46 per month. Men, averaging at £57 per month, spend more than women, who on average spend £35 per month.
Clearly statistics like this represent a big potential market, and a challenge, for retailers. In fact, one in ten retailers launched some form of subscription service during lockdown, and one in five say they will continue to develop their subscription service despite the easing of lockdown.

Amazon boss Jeff Bezos has dubbed the new, subscription focussed consumer the “divinely discontent customer.” Companies and brands now need to do more than just meet demand. According to Bezos, if they are going to keep their subscribers, they need to anticipate and shape demand as much as respond to it.

Will the subscription economy continue to grow? It seems inevitable, and the UK subscription economy is a fraction of that worldwide, which has grown 435% in just nine years, with some commentators dubbing it “the end of ownership.”

There appears to be growing consumer preference for subscribing over ownership. 71% of international consumers currently have a subscription service and 75% believe that in the future people will own less physical products.

And why not? The subscription economy is more than just boring old razor blades. You can get cat litter on subscription, Japanese snack boxes and newspapers that only focus on good news. And why settle for Christmas just once a year? One subscription service guarantees that a box of festive goodies will arrive every four weeks, whether it’s December or July. It is worth noting that they do turn up on your doorstep, not down the chimney.

‘Flexible’ Careers will Increase the Need for Financial Planning…

In days gone by, life was relatively simple. You left school or university, you found a job and barring moving away or your employer going bust you stayed with that employer until you retired.

Today, and especially after the pandemic, that situation has changed significantly. Employees want flexibility, they want the ability to work from home, they want an employer that understands their work/life balance, and one that shares their ethical values. Job security, and the prospect of thirty or more years with one employer, seems to be low on the list of what employees want.

It is a well-documented fact that millennials – those people who came of age around the turn of the century – will make up 75% of the global workforce by the middle of this decade. They want to work for employers that foster innovative thinking, develop their skills and make a contribution to society.

But do they want a career?

According to a study by Aviva, 47% of employees are now less career-focused following the pandemic, with two in five people claiming “they could never switch off” from work.

24% of women said the pandemic had had a negative impact on their work/life balance as they tried to juggle work, a home, a family and a relationship – compared to just 16% of men.

Inevitably the impact of technology means that it will become harder to separate work and home life, especially if you work at home and the “office” is only a roll out of bed away. A few years ago France introduced a “right to disconnect ” – a law stipulating that companies with more than 50 employees establish hours when staff should not send or answer emails in a bid to prevent burnout and set a clear barrier between work and home life. We can suspect it won’t be the last country to take such action.

While a desire for flexibility, home working and career breaks is understandable it does, however, pose some financial planning questions. People will still need mortgages – which are clearly more difficult to obtain without a consistent employment history. People will still need to plan for their retirement which, again, becomes more difficult with career breaks and frequent changes of employer.

Throw in savings and investments and it becomes clear that while the workforce of the future may want flexibility and everything that goes with it, what it will most emphatically need is consistent, long-term financial planning from experienced advisers.

We keep in constant touch with our clients and review their financial planning on a regular and consistent basis. As attitudes to work change, this tried and trusted approach to clients’ financial planning will be more important than ever.

What does ‘Confidence’ mean when talking business? And why does it matter?

Confidence: we’re not talking here about standing up to make a speech, rather about business confidence and consumer confidence. Over the last two years we’ve heard the terms a lot, as confidence plunged when the first lockdown was announced and then rose again as the vaccine roll-out began.

But what is confidence? And why does it matter?

If we look at business confidence first, a good example, and one that is often quoted on the financial pages, is the Purchasing Managers’ Index (PMI). So what is it? And how does it work?

The PMI is a measure of business confidence, showing whether business expects the economy and prevailing business conditions to be favourable or unfavourable.

The PMI is based on a monthly survey sent to senior executives across a broad spread of industries and asks questions about new orders, inventory levels, production, deliveries and employment. The ‘headline’ number, the one you will often see quoted, can be anywhere between 0 and 100. In ‘normal times’ it hovers around 50, with any figure above indicating that business is confident about the future, whilst a figure below 50 suggests the opposite.

To give you an example of the PMI in action, last April the PMI in the Eurozone crashed to 13.5 as the economic impact of the pandemic became apparent. The UK fared even worse, with the PMI falling to a record low of 12.3 in the services sector. Twelve months later, with the vaccine rollout gathering pace, the PMI for the UK had risen to 61.0.

As noted in the above example, you may also see PMI figures quoted for different sectors of the economy, such as manufacturing and services.

Consumer confidence has a similar numerical value, although that is expressed in plus or minus terms. In April the Consumer Confidence Index rose to minus 15, up from minus 16 in March. Although negative, that was the highest figure since March of last year, with the Index having been as low as minus 34 in May 2020.

Why is confidence important? When consumers feel confident they are more likely to spend and more likely to borrow, both of which are likely to boost the economy. A very simple example is home improvements: we are unlikely to spend the money on a new bathroom, which would benefitting the bathroom supplier and the plumber, unless we feel confident about our future prospects and employment. The search for confidence, or at least, stability, is almost certainly the reason so many people have left the hospitality sector during the last year (with many outlets now struggling to find staff to re-open).

Similarly, when businesses feel confident they will invest in both equipment and new members of staff.

Clearly any potential new variants of the virus would dent confidence again: that is one of the reasons why the Government is so keen to avoid any further lockdowns. It needs to rebuild not just the economy, but our confidence in the economy. Perhaps then we will start to spend the billions of pounds that we, as consumers, have saved over the past year.