Select Committee on Treasury Written Evidence


Memorandum submitted by the Park Group

EXECUTIVE SUMMARY

    —  Park Group plc welcomes the opportunity to respond to the Treasury Select Committee's call for evidence as part of its inquiry into Shorter Term Savings Products and to offer its views on the Christmas savings industry. Park Group has been in the business of operating Christmas savings for 40 years.

    —  Park Group's Christmas savings are based on the premise that by making regular small, manageable payments throughout the year, customers can plan, budget and pay for their Christmas in advance with no credit card or other large bills to worry about in the New Year. Customers have the option of purchasing hampers, vouchers (redeemable at a wide range of high street shops), or other non-food products selected from a catalogue.

    —  Customers predominantly make weekly payments to an agent at a time and a place to suit them. However, an increasing number are opting to order for themselves and to manage and pay for their order over the internet or by direct debit.

    —  Park Group customers use a number of financial products. 94% of Park's customers have a bank account, 53% have a credit card and 73% have a debit card. Park Group's customers make an informed choice to shop with Park for the convenience of the service and the quality of the product.

    —  The nature of the Park Group savings product means that customers have generally planned their spending well in advance, and are consequently far more tightly in control of their finances than those who choose to pay for Christmas in other ways.

    —  Payments to Agents can be spread over a period of typically 45 weeks. Agents are paid a commission based on sales to customers and may also receive a variety of gifts and other benefits for sales performance throughout the year. Customers who choose to trade on their own behalf also receive a commission.

    —  Whilst it is true that those who make payments to Park do not receive any interest on the money that they save, our customers are aware that this would constitute a nugatory sum which would, in turn, be offset by other costs and relative inconvenience—as acknowledged by Brian Pomeroy's recent Treasury report.

    —  Park Group has worked closely with the DTI since the demise of Farepak to create a regulatory framework which offers agents and customers adequate protection against any loss in the event of the company having to cease trading. Accordingly, Park Group is currently moving forward to create a series of Trust Accounts for customers' monies in accordance with the agreed proposals, thus removing any customer risk.

    —  Park's customers are generally happy with the service that they receive, as evidenced by the fact that, historically, 80% return to Park the next year. Park Group welcomes further competition in the market from mainstream providers and credit unions and is confident that the strength of its brand and the quality of the service that Park and its agents provide will guarantee the company a long and prosperous future.

  1.  Park Group plc welcomes the opportunity to respond to the Treasury Select Committee's call for evidence as part of its inquiry into Short Term Savings and to offer its views on the Christmas hamper scheme industry, both now and in the future.

  2.  Park Group plc was first established in 1967 as a Christmas hamper business. This company has since evolved with the group's core business now being focused around mail-order Christmas savings.

  3.  The Christmas savings side of the business effectively incorporates three different businesses—Park Christmas Savings; Country Christmas Savings; and Family Christmas Savings. These operate through the sale of products based on a simple principle—that by making regular small, manageable payments throughout the year, customers can plan, budget and pay for their Christmas in advance with no credit card or other large bills to worry about in the New Year. Customers have the option of purchasing hampers, vouchers (redeemable at a wide range of high street shops), or other non-food products selected from a catalogue. Customers who choose to purchase high street vouchers receive one pound's worth for each pound that they save throughout the year, meaning that they receive the full total of their payments in voucher form. This allows them to purchase products on the high street at the best price available, taking advantage of any discount that might be on offer at the time. Those who choose a hamper or other non-food goods from a catalogue receive their chosen products, as ordered. All of these are delivered to the agent in good time for Christmas. Each customer knows what he or she is paying for from the outset.

THE DESIGN, PROMOTION AND REGULATION OF PRODUCTS IN THE SHORTER TERMS SAVINGS MARKET

  4.  Park Group's business is based on the simple but effective idea of paying a fixed amount each week over an agreed period of time in order to spread the cost of Christmas. Customers choose the product that they wish to purchase, whether a hamper of supplies for Christmas, vouchers redeemable on the high street or other non-food products, and pay a fixed amount each week in payment for that product. There are no hidden fees involved at any stage and each customer receives the equivalent amount back to that which he or she has paid over the year. If a person saves £200 over the course of a year, he or she will receive £200 worth of vouchers redeemable on the high street or a hamper of food or products priced in the catalogue at £200 that they have pre-ordered. All of these products are delivered directly to the agent's door prior to Christmas.

  5.  Park Group operates a predominantly agent based collection system, although increasing numbers of customers are instead opting to order for themselves only and to manage and pay for their order over the internet and by direct debit. Park now has Agents and customers in virtually every corner of the UK.

  6.  Agents are recruited between October and February, by responding to press advertising, direct mail campaigns, internet and direct response television advertising. Agents then recruit customers (usually friends, family or colleagues) who wish to purchase the various products on display in our annual catalogue and on the internet, including grocery hampers, meat packs, freezer packs, confectionery packs, drinks packs, shopping, travel and leisure vouchers, jewellery and gifts and other non-food products such as audio or TV equipment.

  7.  Payments to Agents can be spread over a period of typically 45 weeks. Agents are paid a commission based on sales to customers and may also receive a variety of gifts and other benefits for sales performance throughout the year. Customers who choose to trade on their own behalf also receive a commission.

REGULATION

  8.  Park Group welcomes the Department of Trade and Industry's inquiry into the collapse of Farepak. We have cooperated fully and constructively with departmental officials and look forward to seeing the fruits of the investigation.

  9.  At the time of its collapse, Farepak was a profitable company. Its demise was a direct result of the failure of European Home Retail (EHR) and the use of Farepak's cash to reduce the group overdraft which was secured on the assets of the Group. Park Group has since been working closely with the Department of Trade & Industry to create a regulatory structure to protect customers. Park Group welcomes the statement made by Rt Hon Ian McCartney MP on 28 March 2007 announcing the creation of trust arrangements to offer added protection of customers' money and greater reassurance for consumers in the wake of the collapse of Farepak. The establishment of Trust Accounts for Christmas Savings Clubs will provide the security for customers' monies in the future while affording the flexibility to allow the business access to necessary finance in order to make purchases relating to the provision of ordered services. Park is currently moving forward to create Trust Accounts for customers' monies in accordance with the proposals. We believe that this removes what Brian Pomeroy describes as the "risks" of hamper schemes. [2]

  10.  Whereas Farepak kept no central record of its customers details and account balance, Park Group closely monitors its agents' activities and strongly encourages the submission of customers' details in order that comprehensive records might be maintained at the company's main offices in Birkenhead.

PARK GROUP'S CUSTOMERS AND FINANCIAL CAPABILITY

  11.  The 2006 Park Christmas Savings Agent questionnaire elicited over 13,000 responses and provides a useful profile of Park's customer base. It showed that Park Group's customers are evenly spread over a number of age ranges and are not predominantly restricted to any one age bracket. They are generally banked and are familiar with using financial products—some 94% of our customers have a bank account, 53% have a credit card and 73% have a debit card.

  12.  In opting to pay for services with Park over a number of months, customers make an informed choice over the many other mainstream financial options open to them. Indeed, the Christmas saving market has matured considerably in recent years in terms of the relative affluence of those who purchase Park's products. As an indicator of this, some 66% of our customers own a computer, of which 56% have internet access, predominantly through broadband (72%).

  13.  Park Group is successful for the simple reason that it offers an excellent service. It is designed to provide a convenient way to spread payments through the course of the year for pre-chosen products, thus when Christmas arrives our customers have everything they require delivered to their door, fully paid for at a time to suit them. Unlike those who choose to pay for Christmas on credit, there is no financial hangover in the new year. Indeed, the nature of the Park Group savings product means that our customers have generally planned their spending well in advance, and are consequently far more tightly in control of their finances than those who choose to pay for Christmas in other ways, as Pomeroy acknowledges:

    "4.17 Many customers said that they like being able to compartmentalise their saving so that they can see immediately what they have saved for a particular purpose. The discrete nature of hamper schemes means that, throughout the year, people can monitor exactly how much they have saved for Christmas." [3]

  14.  Whilst it is true that Park Group customers do not receive interest on the money that they invest, they choose to pay instead for convenience and peace of mind. Customers are, after all, ultimately buying a service which includes the provision of a product with free delivery. Furthermore, Pomeroy acknowledges that hamper scheme customers are aware of the interest that their money could accrue if saved elsewhere, but that they consider this to be a nugatory sum which would be offset by other costs and relative inconvenience. [4]Qualitative research for Brian Pomeroy's review of Christmas savings confirmed that hamper scheme customers are generally aware that they are paying for a product and a service rather than simply participating in a savings scheme:

    "Evidence from the workshops suggests that, although hamper schemes are promoted as a way of saving and implicitly used with that intention, many customers make a clear distinction between them and formal savings products:

        `I don't really look at it as saving.';

        `You don't want to think you're saving—no-one wants to save. With hampers you feel like you're getting something'." [5]

  15.  For customers who are elderly or immobile the delivery of all their Christmas supplies, pre-ordered and paid for over 45 weeks, is an especially valuable offering which the high street bank or credit union cannot possibly provide. Others, as Pomeroy acknowledges, are attracted to the prospect of not having to join the Christmas "hordes" at the shops.

  16.  Should a customer wish to cease making payments prior to having paid the full amount of the product that they have ordered, they are able to trade down and change their order to the level of that which they have already paid or request a refund.

  17.  Our customers are generally happy with the service that they receive, as evidenced by the fact that, historically, 80% return to Park the next year. Park Group welcomes further competition in the market from mainstream providers and credit unions and is confident that the strength of its brand and the quality of the service that Park and its agents provide will guarantee the company a long and prosperous future.

April 2007







2   Brian Pomeroy, Review of Christmas Savings Schemes, HM Treasury; p.27, paragraph 6.1 Back

3   Ibid; P.17, paragraph 4.17 Back

4   Ibid; P.18, paragraph 4.21 Back

5   Ibid; P.17, paragraph 4.16 Back


 
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