It may not be a popular sentiment, but there are many indications the world economy is slowing. So winning in business this holiday season may not mean just having great holiday sales or a good fourth quarter as much as it means preparing to survive a slowdown in 2016.
What evidence is there for this? The price of commodities, like copper, is falling. The price of copper has been dropping since its peak at the beginning of 2011 and is the lowest it has been since the middle of 2009. Demand for copper in both China and the rest of the world has been dropping for over a year. Oil prices are down, causing reduced capital investment in that industry. The energy sector is responsible for one-third of the S&P 500 capex. A significant pullback from that industry will create a deficit in that capital spending.
Employment in the U.S., despite the low headline number of 5.0%, is not what it appears to be. According to the Federal Reserve’s household employment survey, the labor force participation rate is at 62.4%, the lowest it has been since 1977.
Add to this that Japan, the world’s third largest economy, now appears to have two consecutive quarters of GDP contraction which suggests it is in a recession. All these indicators and more point to a slowdown in 2016.
So how should you negotiate this coming sluggish economy? Here are some suggestions:
Jealously guard your existing customers
Do everything you can to nurture and maintain your existing relationships. The end of the calendar year is typically when sales people come calling for sales to make the end-of-the-year numbers. Customers undoubtedly know this. Do what you can to lock in customers for longer term contracts. Protect your existing revenue stream or risk losing it to your competitors.
Exploit your channels
What new or complementary products can you offer these existing customers? The temptation when times are tough is to stuff the channel. However, this is simply making it harder for you to add to your customer’s excess inventory later. They may not accept more of the same product now even at a significant discount because they simply can’t afford to pay for it or store it. What more can you offer through those channels? Bundling, maintenance contracts, spare parts, consumables, and consulting or education services are some things you can offer to customers through existing sales channels.
And what about your website? Are you using it as more than just an electronic brochure? Are you helping customers with instructions or videos showing how to install or maintain your product? Are you collecting “hacks”, creative uses for your product, and posting them on your website? Are you making sure that every store location or outlet for your product can be found by a user on your website?
Control costs through a lean approach
Cutting costs is the obvious answer to any slowdown. Have you really looked at all internal processes for forms of waste? Have you taken a zero-based approach to in-house, back office activity? Can you eliminate unnecessary activity? Can you change packaging or reduce other indirect product costs? I once worked for a company that was buying AA batteries that it supplied with its products at retail prices. It was making its own polyurethane tubing when it could buy from other manufacturers for far less. A relentless review of every product’s bill of materials and process costs could save you significant amounts per unit.
Focus on quality through customer “wants”
Do you have unique processes or products that give you a competitive advantage? High-value products will retain more value over time. However, “value” is not necessarily confined to the quality of product materials or durability. What about styling? Scientific equipment makers, taking cues from consumer manufacturers like Apple, are using design principles to appeal not only to changing customer functional specifications but to their design aesthetics as well. Mouse cages for research labs in designer colors? Why would a company do that (this company did, and it is working)? MacDonald’s started to offer breakfast all day and it’s working for them because it’s what customers want.
Be willing to take a longer term view on new investments and ventures
Think very hard before rationalizing products or closing retail locations. New introductions made recently will take longer to gain traction in a slow growth environment. This is especially true in international markets where a strong U.S. dollar makes U.S. sourced products more expensive and less attractive. Reduce risk by using pop-up stores or temporary websites to test new concepts. Also, consider limited production runs or fewer SKUs to limit inventory risk of new introductions.
Redeploy capital
Do you have assets that sit idle such as machinery, real estate, or a fleet of vehicles? It may be time to sell them while you can achieve a higher price. You may be able to sell your property and lease it back, converting real estate or equipment to a liquid asset (cash). You may use the cash later to buy other assets at lower prices when other businesses rush to sell off.
Shoring up for a recession isn’t as much fun as preparing for blow-out holiday sales but what you do now may save you in the long run.
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