Thursday, 27 November 2008

Shopping Institution

The news that a British shopping institution and high street icon, has been placed into administration – which is a technical measure that potentially allows a company to trade its way out of a crisis, but the administrators are legally bound to put the interests of creditors first, which has befallen upon Woolworths and MFI the furniture retailer may be the start of a steep dive in the capitalist economic crisis, a taster of what’s to come.

Woolworths owes £385 million. They have been squeezed by a downturn in consumer spending, and the concern by the banks that they were a poor risk, which meant that their suppliers have recently insisted on pre-payment of invoices, which is the immediate cause of their crisis. This represents a significant development with the storm centre of the recession moving from the banking sector to the real economy. There are several dangers, every high street has a Woolworths, and they employ a lot of staff. If they actually shut then this will be a visible manifestation of economic crisis destabilising confidence even further, as would a big increase in unemployment – in addition to the obvious problems for the workers concerned and their families. There is also a danger that Woolworths’s administrators may seek to improve the cash flow with a pre-Xmas fire sale, which would start a deflationary price war and push other weak retail firms out of business.

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