View from City Road: Why it's better doing business in Britain

What do you buy when you go to the States? Compact discs, contact lens solution and clothes figure on most people's shopping lists. You might also eat well while you are there and pack your bags full of toys for the kids back home.

Anyone who has been to the US recently will tell you it is cheaper than here. McKinsey & Company, the management consultant, has produced a report which says the average price gap is 32 per cent.

Staggering though that is, it is not the full story. Most holidaymakers will not have noticed the best bargains. According to McKinsey these are to be found in the do-it-yourself, or hardware, sector. Prices of paint, screws and wood are 77 per cent higher here than in the US.

Why are British prices so much higher? One of the biggest differences is land prices. Whereas British food retailers have to pay pounds 10m for a superstore site in the South-east, their counterparts need spend only a fraction of that in the US.

Labour costs are also higher and productivity lower in the UK. And there are import duties and sales taxes to take into account. McKinsey has taken the 10-year average exchange rate of dollars 1.60 throughout.

But a nagging doubt remains. Are British consumers getting a raw deal? The answer depends on what sector you look at.

Take food. McKinsey found that the initial mark-up, reflected in gross margins, was much the same in America and Britain, but that UK retailers made much higher returns on capital. This is because their lower operating costs and the advantage of negative working capital - UK food retailers sell their stock before they pay their suppliers - outweigh the effect of higher capital costs (land and buildings).

In other words, British food retailers make more profits not because they impose larger mark-ups but because they use their capital more efficiently. They also start with more expensive goods.

The same is not true of do-it- youself. In this business, the UK-US price gap is enormous but the British retailers still do not make huge sums of money. This suggests that American retailers would be far better off looking at the British do-it-yourself market than at food retailing if they are considering expanding here.

Food retailers cannot afford to relax, however. McKinsey confirms that shoppers are becoming ever more price conscious, which means there is room for the discounters such as Netto, Kwik Save and Aldi.

But price consciousness does not spell the end of the established supermarket groups. David Sainsbury was right when he said yesterday that there were too many old stores and not enough new ones.

British retailers are better off opening stores at home than in the US. As many have found to their cost, the States is far too competitive.

Suggested Topics
PROMOTED VIDEO
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Sport
Laura Trott with her gold
Commonwealth Games
Arts and Entertainment
Gal Gadot as Wonder Woman
film
News
Bryan had a bracelet given to him by his late father stolen during the raid
people
Sport
France striker Loic Remy
sportThe QPR striker flew to Boston earlier in the week to complete deal
Extras
indybestSpice up your knife with our selection of delicious toppings
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Training/Learning and Development Coordinator -London

£28000 - £32000 per annum: Ashdown Group: Training/Learning and Development Co...

Training Programme Manager (Learning and Development)-London

£28000 - £32000 per annum + benefits: Ashdown Group: Training Programme Manage...

.NET Software Developer (.NET, C#, ASP.NET, front-end)

£30000 - £45000 per annum: Harrington Starr: A Global Financial Service Organi...

C# Web developer (C#,MVC,ASP.NET,SQL)

£30000 - £40000 per annum + Bonus+Benefits+Package: Harrington Starr: C# Web d...

Day In a Page

A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

A new Russian revolution

Cracks start to appear in Putin’s Kremlin power bloc
Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

Apartheid’s sadistic killer that his country cannot forgive

The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

Standing my ground

If sitting is bad for your health, what happens when you stay on your feet for a whole month?
Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

Greene prays for chance to rebuild after injury agony

Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
Israel-Gaza conflict: Secret report helps Israelis to hide facts

Patrick Cockburn: Secret report helps Israel to hide facts

The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
The man who dared to go on holiday

The man who dared to go on holiday

New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

Best comedians: How the professionals go about their funny business

For all those wanting to know how stand-ups keep standing, here are some of the best moments
The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

The Guest List 2014

Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

Jokes on Hollywood

With comedy film audiences shrinking, it’s time to move on
It's the best of British art... but not all is on display

It's the best of British art... but not all is on display

Voted for by the British public, the artworks on Art Everywhere posters may be the only place where they can be seen
Critic claims 'I was the inspiration for Blanche DuBois'

Critic claims 'I was the inspiration for Blanche DuBois'

Blanche Marvin reveals how Tennessee Williams used her name and an off-the-cuff remark to create an iconic character
Sometimes it's hard to be a literary novelist

Sometimes it's hard to be a literary novelist

Websites offering your ebooks for nothing is only the latest disrespect the modern writer is subjected to, says DJ Taylor
Edinburgh Fringe 2014: The comedy highlights, from Bridget Christie to Jack Dee

Edinburgh Fringe 2014

The comedy highlights, from Bridget Christie to Jack Dee
Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

The woman stepping down as chair of the Heritage Lottery Fund is worried