BS ESSAY KERR
Gus Mitchell 1/20/15
Discuss how a rise in the UK interest rates might affect the ability of SHL to achieve its objectives.
Interest rates can be defined as, the amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets.
A rise in interest rates increases the borrowing cost and in terms of the general public it increases mortgage payments and therefore has an impact on people spending money on goods and services, especially luxury goods.
In the case of SHL it could result in people postponing the purchase of new clothes or buying the cheaper alternative, unless SHL is willing to decrease their price. A reduction in price however could tarnish the image of a brand like Harvey- given the aspirational target market of SHL.
Any reduction in demand and thus sales of its clothes would make it more difficult for SHL to achieve its growth in revenue objective by 2016. Obviously the bigger the increase in interest rates the longer this increase rate rise lasts and the higher the income elasticity of demand for SHL’s products, the bigger the likely impact on SHL and the harder it would be for SHL to achieve its growth in revenue objective. It should be appreciated however that SHL target market of aspirational 30 something’s and potentially more affluent customers – might be less affected by changes in interest rates than the lower end of the market. This is because it is likely that their discretionary income would permit a lowering of that income without markedly changing their spending habits.
A rise in interest rates would, however, increase SHL’s costs- in terms of interest rate payments on any funds borrowed on a variable rate of interest. At the time of the balance sheet in 2013 SHL had a borrowing of £2,648,000. This is a significant sum of money, and an interest rate change of just half a percent would increase annual interest payments by £132,400.
A rise in the UK interest rates could also result in a stronger
Discuss how a rise in the UK interest rates might affect the ability of SHL to achieve its objectives.
Interest rates can be defined as, the amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets.
A rise in interest rates increases the borrowing cost and in terms of the general public it increases mortgage payments and therefore has an impact on people spending money on goods and services, especially luxury goods.
In the case of SHL it could result in people postponing the purchase of new clothes or buying the cheaper alternative, unless SHL is willing to decrease their price. A reduction in price however could tarnish the image of a brand like Harvey- given the aspirational target market of SHL.
Any reduction in demand and thus sales of its clothes would make it more difficult for SHL to achieve its growth in revenue objective by 2016. Obviously the bigger the increase in interest rates the longer this increase rate rise lasts and the higher the income elasticity of demand for SHL’s products, the bigger the likely impact on SHL and the harder it would be for SHL to achieve its growth in revenue objective. It should be appreciated however that SHL target market of aspirational 30 something’s and potentially more affluent customers – might be less affected by changes in interest rates than the lower end of the market. This is because it is likely that their discretionary income would permit a lowering of that income without markedly changing their spending habits.
A rise in interest rates would, however, increase SHL’s costs- in terms of interest rate payments on any funds borrowed on a variable rate of interest. At the time of the balance sheet in 2013 SHL had a borrowing of £2,648,000. This is a significant sum of money, and an interest rate change of just half a percent would increase annual interest payments by £132,400.
A rise in the UK interest rates could also result in a stronger