The recession tightrope
Article Date: Feb 05 2009The gloom and doom is everywhere and I certainly don’t want to add to it, but we’ve been told that the economy will decline at its fastest rate for 60 years in 2009.
That sounds really scary, but what it probably means is a decline of only 2.5 per cent.
Of course, some sectors have been hit disproportionately hard like property, banking and automotive and there is a lot of personal hardship, but to end up with a decline that small means a lot of businesses will remain unscathed.
If you do have a sizeable business in a recession-hit sector, then survival is likely to be the key: reducing debt; cutting your costs; guarding your cash; chasing overdue debtors; ensuring that you are offering your customers really good value and so on.
The vast majority of businesses will already be doing these things, but what surprises me is how few businesses have a clear strategy for dealing with the recession. If your sector is declining, the most important strategic question is: are you aiming to increase your market share or maintain margins?
Either strategy can work, but you need to be clear which it is to be. Carphone Warehouse has single-mindedly gone for market share and has announced like-for-like sales growth of 8.3 per cent in the 13 weeks to 27 December.
That’s terrific – I doubt any competitors will match that. Conversely, British Airways has made it clear that it aims to maintain margin and will let its competitors take volume. BA believes it will be in better shape when the economy recovers with that strategy. Quietly, it has been busy reducing its capacity – cutting back the number of flights to some destinations and ceasing to go to others.
Its load factor has only fallen slightly (by 0.2 per cent to 76.7 per cent) and you don’t feel you are on a dying airline when you fly with BA. My prediction is that, when others are closing down or in Chapter 11, BA will still be making a reasonable profit, even if it is much reduced.
A sensible objective for many companies, in what is undoubtedly going to be a deep and probably long recession, is “to be the last man standing”. But to do that you need to be clear on your strategy – like Carphone Warehouse and BA.
Other sectors have either avoided the recession or are positively benefiting from it. Some are surprising, some aren’t. Property sales are awful, property rental is good; luxury goods sales are tumbling, lipstick sales are up (by 21 per cent in the US); football clubs are really struggling, five-a-side is booming; Woolworths went bust in December, Selfridges sales were up by five per cent.
This is the second thing that amazes me – many bosses of companies spend a lot of time complaining about how bad things are, work hard to find every fiver they can save, but spend next to no time understanding the psychology of their customers.
It’s the same in every recession (this is my fifth). These bosses don’t understand that people’s outlook and attitude change in a recession and different groups of people change in different ways – and at different times.
Most people will be amazingly tight and careful with their money at one time and really self-indulgent at another. What is essential to one group is a luxury to the next.
How much do you know about that? Have you got inside your customers’ heads to find out how they are really thinking? If the bosses of big companies haven’t finally got off their butts to talk to their customers, then they never will. The bosses of the big three US car makers flying into Washington in their private jets to plead poverty, said it all to me. However, that is them, this is us.
Agility, perhaps the most important quality in entrepreneurship, demands that you can adapt quickly; turn on the proverbial sixpence and race off in a different direction (but bringing your team with you, of course).
In a recession, this means that while you are minimising your costs, you are launching new services and new offers. But you will be ‘piggybacking’ them wherever possible in order to keep your costs down and minimise risk. You might be piggybacking on one of your existing services or forming an alliance with someone else – using their database and giving them a percentage. Partnerships, alliances and joint ventures are very important in a recession as, properly structured, they keep your marketing costs down while opening up new markets.
My local post office has definitely understood the recession-driven obsession with value and ‘deals’. Last week, I called in for a standard pack of copy paper for my printer. I resisted a special offer on confectionery but then I came to a great pile of reams of copy paper, attractively stacked – I ended up buying two packs, rather than one, of a more luxurious quality than I originally intended.
If a local post office can innovate and be forward-thinking to make new sales, so can we.
