Q1’s post-Covid ebullience evaporates at rate of knots

But the situation has changed so much even in the last three weeks that talking to business people is a mood-changer in itself.

Those with smaller lifestyle businesses are doing well on the back of continued high spending by consumers who have been cooped up with their savings for nearly two years. There is even room to hike prices.

Anyone trying to hire staff for the rebound, however, is incredibly downbeat about the outlook. Yet, there is enough momentum among many businesses to carry them through a chunk of this year. They are more worried about next year.

Staff shortages seem to be the problem even more than rising energy bills. At worst, lots of companies can pass on higher input costs to customers. But they cannot drum up or deliver the business if they cannot get enough staff to meet the demand.

Consumer businesses in Ireland are rapidly developing an image problem. There is an assumption that all price hikes are price gouging. Some of them probably are, but not all.

Businesses are carrying legacy tax bills and other debts which were warehoused through the pandemic.

Banks have by and large worked with business clients to hold off but those small firms are now wondering how and when they will get to pay this money back, especially if they cannot find the staff to deliver on the level of business available.

The optimism of the first quarter of the year is evaporating. A survey by the Institute of Directors, published a month ago, pointed in this direction with a smaller number of business executives remaining optimistic about the outlook for the economy compared to a previous survey. 

Just from speaking to people, the mood has got a lot more downbeat even since then. This erosion of confidence has hit the international stock market, the invincible tech sector and is now spreading to the corporate bond market in Europe and the US.

Whatever about investors taking a hit on share prices, executives running big, heavily indebted businesses are worried about the ECB move to exit corporate bond markets.

The ECB has been buying hundreds of billions of euro worth of corporate debt. So far, it has accumulated €340bn of corporate bonds with €140bn of that bought since the early days of the pandemic.

It is pulling back from that purchase programme, which bond investors say will leave a void in its wake.

The ECB had become not so much the buyer of last resort, but the buyer of first resort for certain bond issues by companies.

With its exit from that market, low-debt blue chip companies will still be able to find buyers when they go to raise money. But more leveraged firms will find it harder, especially if they are re-financing existing borrowing.

There may even be a ticking time-bomb in the multi-trillion dollar global corporate bond market that higher interest rates and central bank pullbacks will detonate.

Welcome to the beginning of a rough ride.

Glen Dimplex decides to prioritise

It is a little unusual to see Glen Dimplex group, founded by Louth entrepreneur Martin Naughton back in the 1970s, selling a brand. The decision to sell the Morphy Richards kitchen appliance brand in particular might seem untypical of the business.

After all, Naughton built up the success of the group by acquiring well-known consumer brands that were struggling under previous ownership. He did it with Dimplex, Belling and even made a bid to buy Moulinex back in the 1990s.

The decision to sell the brand to its Chinese manufacturer Guangdong Xinbao Electrical Appliance Holdings (Xinbao) was opportunistic it seems. According to Glen Dimplex CEO Fergal Leamy, the Chinese firm approached them after they had worked together on new plans for expansion of the brand over the last two years.

Clearly the two have a long business relationship. Glen Dimplex’s own presence in China goes back many years initially as an outsourcing opportunity and later as a consumer market for its products. 

As recently as 2010 group founder Martin Naughton told a conference the Morphy Richards kitchen appliance brand he had bought in 1985 had sales of £25m.

Reports this week said Morphy Richards’ Chinese sales were now running at around €200m. 

Glen Dimplex has other fish to fry when it comes to its heating and ventilation products, which make up most of its revenues and the proceeds of the sale will be invested there. 

Nevertheless, economic growth has been slowing. And the last two years must have been very difficult as China stuck to its zero-Covid policy.

China is digging in for a permanent zero-Covid policy as authorities build infrastructure to extend this approach. The country is building hundreds of thousands of permanent testing facilities and expanding quarantine centres.

This means rolling and sporadic lockdowns and no plans to move towards living with the disease. The Chinese vaccination programme has not been as successful as in the West, especially when it comes to take-up by older, more vulnerable people.

Glen Dimplex has decided to avail of an opportunity to take a good price from its Chinese partners and invest in other divisions in the wider group’s product range where its priorities lie.

John Lewis sees landlord opportunity

British retailer John Lewis Partnership is to build 10,000 homes and rent them out.

The company named the first locations for its build-to-rent houses and apartments during the week.

It sounds a bit like the old days when large employers set up trusts to help provide affordable accommodation for staff. But it’s not. John Lewis is building and renting the properties as an investment and to help build up communities near its John Lewis and Waitrose stores.

The houses will have John Lewis furnishings apparently, which will do wonders for tenants’ individuality.

The firm scores highly on surveys as an employer but it isn’t planning to build social or affordable housing for staff. Back in the old days when companies like Guinness provided homes for employees, the workers tended to remain with the company for life.

That day is well and truly gone.

John Lewis Partnership is owned by its staff and the push towards housing suggests there is a better return to be made from property development than retailing. 

I wonder will this year’s Christmas ad be set on a building site.