“Duck & cover” or recession-ready?

“Trees don’t grow to the sky” – that’s how US financial columnist Louis Rukeyser described the inevitability of financial downturns.
Last month I read “Mastering the Market Cycle” by Howard Marks. Who knew it was possible to write a whole book on various financial cycles and sustain the readers interest? Anyhow, what struck me is how much it’s human behaviour – in particular sentiment – rather than economics that propels cycles.
The author argues that cycles are inevitable. The difficulty is knowing where we are in a particular cycle at a given time. Here the book emphasises the importance of looking outside and finding contextual clues.
The subject of downturns is also discussed in a recent edition of The Economist. In a feature titled ‘Downturns, Disrupted’ the paper explores how the next downturn will be different to the previous crash of 2007. It highlights that the world has changed a lot in the past dozen years.
Firstly, technology companies now comprise 7 of the top 10 largest companies in the world, in 2007 it was just two. We don’t really know how these firms (who heavily depend on advertising revenues) will fend in a recession.
Advances in technology have also enabled businesses to replace people/processes with technology, which may have increased productivity, but likely restrict the scope for further ‘belt tightening’.
Second, firms are more indebted that they were before. Historically very low interest rates have made borrowing more attractive to businesses (and their shareholders), to fund things like acquisitions.
A growing volume of borrowing is happening outside traditional banks, through lenders like Funding Circle for businesses and on consumer “buy-now pay later” platforms like Klarna and ClearPay. If income is suddenly reduced, the cover for interest payments to any lender – traditional or otherwise – is also reduced.
I would add that in some ways consumers’ shopping behaviour is also quite different to before the last recession. Clearly spend online is a greater proportion of the total spend. In western Europe we’ve also seen a continuation of the long-running shift from owning big stuff (like top spec cars) to spending more in both experiences and alternatives to ownership (like renting, leasing, or licensing).
What is clear is that financial cycles create winners and losers. Recessions have the ability to alter the business and consumer landscapes relatively quickly and semi-permanently.
In the UK at least, I believe the rise of discounters (like Aldi, Lidl, Homesense, TKMaxx, etc) can partly be attributed to some smart marketing which capitalised on the last downturn and repositioned discounters from ‘shops for poor people’ to a great choice for ‘savvy shoppers’ (of any income bracket).
We don’t know when the next downturn will happen or exactly who the winners and losers will be. However, for business people in their early-thirties or younger, it will likely be their first experience of working in one.
During the financial crash of 2007/8 I was retail marketing director for Dulux paints. We were already managing to grow our business, despite the long term decline in people participating in do-it-yourself (DIY) painting, but the aftermath of the financial crisis was to further frustrate our market.
A great time to start working for a DIY brand (!) Government stats show that UK housing transactions halved after the 2007/8 financial crash
We knew that people typically painted before they moved house (to make it more saleable) and again when they moved in (to make it their own). With the financial crisis, which was triggered in US sub-prime mortgages but spread across many financial institutions, the number of housing transactions plummeted by about half in the UK. This choked off a big chunk of demand for paint associated with house moves.
At the time, I recall that the group finance director had a mantra to help us steer the business through these tough times. Quite simply, we should pay close attention to “customers, costs & cash”.
Customers – doubling down on our strategy of ‘customer intimacy’ was key. Bearing in mind our retailers were also having a really rough time, we worked hard to collaborate even more and provide outstanding customer service. We also opened up new channels for paint sales to try and diversify our revenue base.
Costs – we took a preemptive approach to cost control, leaving vacancies unfilled (to minimise potential job losses), minimising business travel, etc. We focussed on management systems – like Integrated Business Planning – to provide better visibility of market and internal information, which in turn allowed us to quickly adapt sales, marketing and supply chain plans.
Cash – since you don’t pay shareholders in brand equity or market share (although these help), a firm’s ability to generate cash flows becomes even more critical in a recession. At Dulux, there was laser-like focus on collecting money owed to us, indeed when one of our larger key accounts regrettably failed, we were able to retrieve stock which we still owned from their warehouse and re-sell it elsewhere.
It is easy to regard a downturn as one massive, miserable challenge – or set of challenges. However, they also bring opportunities. For example, media prices may deflate as advertisers reduce marketing budgets, but this means those brands who keep investing, grab a greater share of voice. And we know from various experts (Binet & Field, Nielsen, etc) that a brand that can sustain a share of voice which is greater than its market share tends to grow.
Another ‘silver lining’ is that recessions create an environment with huge potential for learning for those prepared to roll up their sleeves, get under the bonnet and grasp how their business makes money.
In marketing, I think it sometimes feels obligatory to ooze positivity and optimism in all circumstances. So, writing an article for marketers about the next recession (whenever that is) is a little contrarian.
However, deep-rooted confidence comes to those who prepare. In the long run it’s important to make sure you, your brand & business are ‘match fit’ for those inevitable downturns and be able to spot and exploit the opportunities that accompany them.
At Brand Ambition our goal is to help you to prepare your business for the future, serve your markets and customers better – and make more money from doing so. If you’d like to chat about future-proofing your brand & business, please get in touch.

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