Understanding the impact of outside factors on your business

A large retail client of Business Science has seen significant growth year on year in majority of their departments, however kitchens sales have been declining over the past few years. Whilst this decline has slowed considerably in recent years, several successful kitchens campaigns have not been able to stop it completely suggesting that there is an underlying explanation not affected by media.

It is known that this retailer’s seasonality spikes following an increase in home mortgage approvals, where specifically the bathrooms, bedrooms, decoration and kitchens departments are most highly correlated with mortgage approvals.

During our latest econometrics project, the team split the UK into three sections- Scotland, England & Wales and London- in order to compare sales in those stores to the trend in house sales and/or mortgage approvals. Research found that the volume of house sales in Scotland had increased by 12% year on year (Registers of Scotland), while kitchen sales in Scottish stores were up by 5%. In contrast, the volume of house sales in England & Wales had decreased by 6% year on year (UK Land Registry), while kitchen sales in these stores were down by 9%. In London specifically, the volume of house sales had decreased by 12% year on year (UK Land Registry), while kitchen sales in London stores were also down by 12%. This lead to the logical conclusion that kitchen sales were being dramatically affected by the housing market.

Further research found that the percentage of the population renting privately has increased by 5% since 2008 (English Housing Survey, GOV UK). Consequently if more people are renting, then less people will be in the market for buying a kitchen in the short term, although they may buy from our retailer in the long term if brand health is strong. From 2016 onwards, the UK Land Registry has predicted that housing transactions will begin to increase every year and given this, it is important for our retailer to keep on advertising. Generating long term benefit from the kitchen campaigns will help improve kitchen sales performance, while also ensuring the retailer’s long-term position in the kitchen market.

An econometrics project for another Business Science client, who is a higher education provider, has previously found that although the economy offers a small contribution to the total number of course registrations, it can be a main driver of increased volumes. A stable economy allows people to feel more confident and like they can invest in education, which can be costly. Research into possible future scenarios found that should the economy worsen again, the way to overcome this would be to focus on driving consumer opinion that higher education is worth the cost.

A different large retailer also experienced the impact of the economy when a short term shock in demand occurred during Easter 2015, causing a 1.8% decrease in sales compared to the previous period. Although the economic climate had significantly improved compared to the previous period, all major economic indicators showed a sudden drop over Easter. Research found that this was likely caused by the proximity of Easter to their Winter Sale as well as the financial uncertainty caused by the upcoming general election in May 2015, which prompted consumers to hold off or cancel their purchase plans.

Having seen that the economy has such an impact on clients across various sectors, it will certainly be interesting to see how the British public vote in the EU referendum this Thursday!