18 months ago I wrote this post about one of our core theories of survival forged in the turmoil that saw the birth of Severn Delta.
Given the financial meltdown that is ripping through banking system it seems pertinent to reprise it: We, collectively, will not grow our way out of this hole.
So far out here in the real world where people get in their cars every morning, drive to work, take the kids to school, go shopping, eat dinner it feels like the early phoney war months of WWII. Not much has changed unless you have the misfortune to work for one of the increasing number of business failures .
But the bad tidings are piling up and political dithering is eroding market confidence. Consumers are pulling in their horns. Retail sales are down. The housing market is stagnant. New car registrations like new mortgages agreements are suddenly like rocking horse produce.
Behavior is slowly changing. Caution taking hold where exuberant confidence once ran free. Uncertain of our future prospects a survival instinct kicks in: we shrink to survive. We cut back and save our cash. Whether consumer or business this is the sensible course. Asset purchases can wait. We look for better value in consumables. We change vendors to offset rising prices or try to do without some things all together.
Collectively this means cumulative contraction. We will not grow our way out of this hole. We will turn round by shrinking to survive and growing again from a lower collective base.
In time those who have been fortunate enough not to lose their jobs will regain confidence and start to spend. House prices will eventually return to a level where their relationship to average earnings will make it viable for people to move. There will be pain along the way, no doubt there.
A while back I said here that I felt 2009 would hold the hardest yards. I haven't changed my view. Things for us right now at Severn Delta could not be better with a record sales and profit month under our belts in September 2008. But the underlying reason for this is the surging volumes in the value for money end of our portfolio over the past 10 weeks.
That gives a strong indication of where consumer confidence is heading. It is a trend that has only just started and has a long way to run. To be honest it may be a permanent sea change. But of that I will write more later.