We’ve experienced a robust growth period since exiting the Great Recession of 2008. However, not counting the abbreviated pandemic economic decline in 2020, it would appear that we are overdue for an economic slowdown, aka a recession.
The National Bureau of Economic Research defines a recession as a significant decline in economic activity spread across the economy that lasts more than a few months. Many indicators determine if a recession is officially declared, and economists will offer differing opinions and advice on whether the recession declaration is warranted.
Yet, it’s hard to ignore the indicators in front of us: rising inflation, softening of home sales, an increase in housing inventories, an unstable geo-political world and rising interest rates. Listening to the indicators is the first step; actionable steps to lessen the impact are next in order. Specific strategies are required to soften the effect and preserve your organization from riding the wave of uncertainty.
There have been five recessions since I started my kitchen and bath business career in the late 1970s. Each one seemed worse than before, and the cause and effect were uniquely different. The experiences and lessons learned, however painful to endure, were valuable in preparing for the next. But, the resulting lessons were indeed learned, embraced and heeded.
To be prepared for the next recession, 12 months of overhead expenses should be kept in a liquid portfolio, ready to access at a moment’s notice. Since this is difficult for many dealers, additional required steps should be taken to prepare for the unlikely event of a recession.
A wise adage attributed to Benjamin Franklin is just as relevant today as when it was first spoken: “If you fail to plan, you are planning to fail.” Every organization, at some point, is exposed to external forces or trends – like a recession – that are uncontrollable. Advanced planning removes some of the uncertainties of the unknown.
Planning for an economic decline involves leveraging the 3-R’s – Resilience, Reevaluation and Redefinition. These three elements collectively serve as practical tools to combat a downward turn in the economy and help keep your business stable.
Resilience is the process of successfully navigating a problematic or painful situation. Resilience starts with acknowledging the challenge ahead and believing in the actual economic indicators. It’s a positive attitude that pivots one from a position of fear, especially of the unknown, to a place of motivation to seize the moment and take immediate action.
It also involves reviewing your budget and adjusting it to its absolute core. I’ve always advocated for creating more than one budget – one is preferred and another is for a bare bones, “sky is falling” scenario. This secondary budget assists with adjusting more quickly as the situation requires because all the “what if” planning is performed up front.
Under this scenario, it’s essential to analyze each expense item, including personnel, and ask this question: what is the value to the client? If an expense does not add value to a client, consider either reducing or eliminating the cost.
One expense that should be respected during any economic downturn is promoting your products and services. Often a dealer’s first instinct during an economic retraction is to cut the advertising and marketing expense. Resist the temptation. This economic decline could be a red ocean moment – the opportunity to capture market share from your competitors.
A potential downturn is a perfect time to reevaluate all aspects of the business: the mission, the vision and relationships with vendors and customers.
In previous issues, I discussed the importance of establishing the business’s mission, why it exists, and the need for clarity about where the organization is heading. Planning for a possible economic downturn is a perfect time to reevaluate the company’s existence and whether it is on track to achieve the vision crafted earlier.
It’s also an ideal time to evaluate your relationship with your vendor partners. Perhaps it’s time to reduce the number of suppliers you represent and concentrate on those who provide the highest value to you and your customer. Are they a key component in the success of the business? Identify those vendors that are essential to you and hard to replace. Assess their financial strength and their ability to weather an economic storm.
This is critical to keep communications open with these key trusted partners. Advise them of your plans so they don’t hear about them through other channels. Strengthen relationships by sharing cash flow forecasts and any contingency plans you’ve developed. This sharing-opening communication will not only strengthen the relationship but, as an integral member of your team, assist as you navigate uncharted waters.
Another critical step is evaluating who your primary customer is and, just as important, who your supporting customers are. Has a change or a shift in the marketplace impacted what you identified previously as your primary customer? Spending time to remember the primary and supporting customers will allow you to maximize your marketing effort and keep your focus on the right target, casting off any distraction that would take you off course.
We’ve all heard the adage that a crisis is a terrible thing to waste. Why shouldn’t a kitchen and bath dealer also lean into that cliché and leverage it appropriately? It may be the ideal opportunity to make transformative changes to the business.
Long-established businesses don’t survive for decades or generations without some adaptation. Learning from past experiences, sensing market shifts, changes in customer behaviors and design and fashion trends are all signs that may indicate a time to make a transformative change.
It may be the perfect time to redefine the business if you’ve contemplated changing your business model. Such an event can accelerate a move from a studio to a showroom or a design-build model. When the economy resets and the sun is shining again, you are ready to capitalize on it with a full head of steam, leaving your competitors in the dust.
One lesson we all learned from the pandemic – adopting a wait, watch and see posture is not a great strategy. Organizations that plan for and take immediate action will be better prepared to deal with the current challenges of any economic constraint and primed to weather the next storm more effectively. ▪
Dan Luck owns Bella Domicile in Madison, WI. He has been a SEN Design Group member since 2002, and has led the SEN Leadership Team since 2018, conducting scores of the group’s educational programs. Please visit http://sendesigngroup/education for more information. Dan welcomes questions and comments at [email protected]).