From the editor

From the editor
How to weather a downturn

By RoxAnna Sway, Editor in Chief
July 01, 2008

Are we in a recession or not? Well not everyone agrees, and while we do not meet the government's official definition of a recession, a survey by The Nielsen Co. (parent company of DDI) revealed that 85 percent of consumers believe that we are in a recession. And according to another survey conducted by The Wall Street Journal, 70 percent of economists do think the economy is in a recession. Whether we are in a recession or not, it is beginning to be painfully apparent that the long consumer-spending boom is coming to an end.

There are some indications that the government tax rebate checks are helping. However, rather than a shopping splurge, many consumers are using the extra money to pay bills and to help cope with higher prices, especially for gasoline and food.

The average middle-class family is faced with an unprecedented financial challenge. In many parts of the country, a home that cost $350,000 in 2006 may now be worth $50,000 less. And it isn't only houses that are losing value. The high cost of gasoline and low mileage performance have made the SUV an anathema in today's auto market. The value of most SUVs has fallen by $3,000 to $5,000 per vehicle, or from 12 percent to 24 percent below Blue Book values—assuming an interested buyer or auto dealer willing to take a trade-in can be found. Owners, who want to get rid of these gas-guzzlers, may be stuck with them—and with gas charges of more than $100 a fill-up. At the same time, a typical family is spending around $1,200 more a year at the pump. For some Americans, the national average salary increases of 3 percent in 2008 may not even be sufficient to make up that difference. Meanwhile, at the grocery store, prices for rice, flour, bread, meat, eggs and many other items continue to rise. Prices for many food items have increased by 20 percent to as much as 100 percent in the past 12 months. Is it any wonder that consumers are not spending at the mall?

So retailers will have to tough it out. Some have already cut back on expansion programs and renovations, while others are laying off employees, closing stores or declaring bankruptcy—Sharper Image and Linens 'n Things, to name a few. (On a positive note: Wal-Mart and Costco have actually gained shoppers, as pressure builds for cheaper prices.)

But some stores are plowing ahead or even taking advantage of the slowdown to recalibrate, and in some cases, gaining ground while their competitors struggle. New York department store flagships are in renovation mode—of course, they have all those well-heeled foreign tourists, and most of those projects were already on the schedule before the slowdown started. Home Depot is spending $3 billion on store improvements, while sitting out the housing bust. Edward Stack, CEO of Dick's Sporting Goods, told the Pittsburgh Tribune-Review: "I think we will continue to open stores at a faster rate than our competitors will. A number of our competitors have indicated they've slowed their development programs."

Here are a few tips for weathering the downturn:

Get closer to your best customers. Communicate often and in as personal a manner as possible. Increase customer service; pile on the loyalty rewards and incentives.

Protect your core at all costs. You cannot afford to let your core product or business become weak. If you do have to cut back, do so with peripheral business activities. Get rid of any products, projects or business units that are not performing up to expectations. If you must downsize staff, protect your core talent. If you cannot pay key employees more, then find other ways to reward—and keep—them.

Watch the competition, but don't be distracted by, or fixate on, what they are doing. Keep your eye on the ball in your own court.

Use the slack time to strategize about the future and to develop innovative concepts. Have plans ready to put into play as soon as things improve, or, if you can afford it and it makes sense, start testing new strategies now.

Maintain a visible presence in the market. Keep sending your customers the message that they can count on your being there when they need you—in good times and in bad.

Look for assets that you might acquire to strengthen your business. With lower prices, real estate, equipment and even other companies may become bargain buys. Move when the time is right, but do not overextend.

Got an opinion? E-mail me at: rsway@ddimagazin.com.