The invisible Hand blog is rapidly becoming an obituary for failed UK companies. Part of me feels guilty for chronicling the demise of the British economy, as I think it is acts as a self fulfilling prophecy. The more people are bombarded with negative news, the less confidence they will have in the economy.
Economics is largely is based on psychology. Of course economists have come up with a vast amount of theories to explain how economies work but most have failed. Throughout the 20th century the UK has followed, Keynesianism, New classical economics, New Keynesian economics, Post-Keynesian economics amongst others. Each one working for a while but then failing in some way. There has been recession, crashes, mass unemployment, inflation, deflation, stagflation amongst others. Regardless of the policy a particular government these economic disasters still took place. It’s impossible to create a general rule for how the economy works: it is too large and dependent on too many factors. The simplest way to understand economics is basic human psychology which is why negative coverage may be very damaging indeed.
Today furniture chain Land of Leather has gone into administration, putting the jobs of its 850 staff into jeopardy. Land of Leather has been hit hard by the downturn in housing market. With less people moving house, the demand for new furniture has decreased. The downturn in the housing market has already claimed the scalps of MFI, The Pier, ScS Upholstery, Ilva and Floors 2 Go. Last week Sofa warehouse announced its attention to call in administrators.
Land of Leather has been in difficulty for some time. Athough the company is debt free, because of the lack of liquidity in the market, they were unable to secure funding to cover the losses it made in January Like Woolworths, Land of Leather refused a buy out package last year in November. The plan was rejected because it was deemed ‘insufficient value to shareholders’.
Ironically, in August Woolworths rejected an offer by Baugar, the company behind Iceland that now owns 50 former Woolworths stores. In both cases, the major concern was for the shareholders’ return on their investments. By putting their own interests above that of the companies, these shareholders effectively doomed these companies to failure. It is a great example of cutting off your nose to spite your face.
As the company is debt free, there is some hope it may find a buyer. Here’s hoping, just so I can put some good news up here for once.
