Game's private-equity owners have played too fast and loose with cost-cutting

My Week

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The Independent Online

A strange week, where not much happened City-wise, then all hell broke loose.

First came the profits warning from Game. I was not in the least bit surprised because between Christmas and New Year I spent time in one of the chain’s shops, waiting for my son, Archie, 9, to spend his Christmas money.

The video games store was crowded, shabby and smelly. There was a queue nearly to the door as one assistant did her best. What did Archie get? Three used Xbox games. The section selling pre-owned games for Xbox and PlayStation seemed to be bigger than the one pushing the new.

The company blamed Black Friday for profits staying flat at £51.3m instead of an expected lift to £63.8m. Apparently, they offered deals on new consoles complete with bundles on games that were simply too good: shoppers bought them instead of paying full price in the run-up to Christmas. Other major retailers, notably John Lewis and Next, are warning that the industry needs to rethink Black Friday – that the heavily discounted day in late November is undermining vital, full-price Christmas sales.

But what I experienced had nothing to do with Black Friday. My sense was of the chain’s private-equity owners cutting costs – and possibly going too far. Certainly, I am not likely to choose Game if I want to buy my son more games or a new console in future.

Giving with one hand...

Instead of watching their savings go down thanks to interest rates being lower than inflation, at last pensioners can start earning.

The Treasury has launched “pensioner bonds”. There are two types: the one-year bond, which will pay 2.8 per cent; and the three-year which pays 4 per cent. Given that these represent 50 per cent more than the average one-year fixed rate, and 60 per cent above the average three-year fixed rate, they’re a genuine help. But, the scheme is not as good as all that:

*The amount being issued is limited to £10bn. There are 12 million pensioners in the UK with savings. If all the applicants  go for the maximum of £10,000 for each of the two bonds, only half a million would become bond-holders, leaving 11.5 million high and dry.

*The bonds do not escape tax. Basic rate income tax will be deducted from the interest earned. A higher rate taxpayer must declare the interest they receive on their tax return. But many pensioners don’t earn more than their personal allowance and are not liable for income tax. If they want to claim it back they must go through the rigmarole of contacting HMRC.

*The Over-65 scheme could have been labelled an Isa, and not have attracted income tax. And if the bonds had been made Isas, the holders could have drawn down monthly interest. As it is, their cash is locked up, for one year or three – or if they choose to withdraw, they lose 90 days interest (about £100 on £10,000 worth of three-year bonds).

The Government is being generous but its pettiness lets it down.

Don’t blame the Swiss for acting

At the end of the week, the markets reeled from the shock of the Swiss Franc’s decoupling from the euro. It came out of the blue, without warning, and sent the Swiss currency soaring 30 per cent and the Swiss stock market crashing 15 cent.

The fury in London was something to behold, with traders accusing the Swiss of behaving irresponsibly. The fact is, they were not the villains of the piece – after three years of being capped to the euro, of actively trying to stop the flood of money into their country away from the single currency, they’d had enough. The euro was showing little sign of recovery, and was about to embark on its own QE money-printing programme that was bound to cost the Swiss.

The impact was instant. I phoned one fund manager friend with a chalet in Switzerland. He’d just seen his mortgage payments climb, the holiday lets he relied upon become even more expensive, and the value of his property almost certainly fall.

His anger, and that of others who’d  been similarly hit, was understandable. Yesterday, the City was full of rumours  of lawyers being consulted with a view to taking legal action against the Swiss National Bank – the argument being that it’s job as a central bank was to provide stability, not to create volatility.

As one trader said to me, it “could easily be sued for violating its mandate: ‘The National Bank’s chief task is to pursue a monetary policy serving the best interests of the country as a whole.’ How can that be, when the currency has rocketed and shares have plummeted?”

Another said: “A lot of people are talking about suing the SMB for negligence – causing a crash, causing bankruptcies. A lot of people are talking to their solicitors today.”

To which, the response must surely be: what else could the Swiss have done? If they’d attempted an orderly ending to the cap against the euro, that would have provoked massive speculation. They would still have had to signal it was finishing – whether it was to take immediate effect or in a few days or weeks. Either way, that would have opened the floodgates.

Switzerland’s reserves amounted to Sfr500 billion, or 80 per cent of their GDP. If the ECB’s QE move was vast, they would be looking at having to spend even more than that, more possibly than 100 per cent of their GDP. This was an untenable position, and that’s why the Swiss threw in the towel.

It’s the collective failure of the leaders of the eurozone economies to manage their currency, to find a way out of their disaster, that is responsible for the position the Swiss found themselves. With Greece just as fragile as it was back in 2012, France and Italy stagnating, and Germany racked by doubts over the Ukraine and Russia, its largest trading partner, the eurozone continues to be in an unholy mess.

The storm sparked by the Swiss about turn is a symptom of a deeper and more significant malaise – the failure of the eurozone to right itself.

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