The latest consumer sentiment data is in, and it’s official: discretionary spending is being drastically cut as Aussies brace for more rate rises and inflation continues to bite.
Meanwhile, nearly half (46%) of businesses have reported increases in their operating costs. On top of supply chain disruptions, staff shortages and a new wave of Omicron variant, conditions are becoming increasingly challenging for businesses, with the worst possibly yet to come.
Downturns are never good news by any means, but history tells us tough times can also forge great resilience in businesses. Having survived the height of the GFC in the retail beauty industry, I can attest to the power of harnessing a start-up mindset to run a lean and agile operation that is always ready to respond to changing market conditions.
Examples abound of robust corporate behemoths founded during severe downturns: General Motors, Burger King, CNN, Uber, and Airbnb are but a few of these. Despite the lack of easy access to financing, weak consumer demand, and strong competition, these businesses prevailed through sheer force of vision and savvy decision-making.
Like many other retail industries, the cosmetics business is competitive; only the toughest survive while the rest are culled from the pack. When times are difficult, there can be no room to make mistakes. During the GFC more than 638,000 Australian businesses shut up shop, an attrition rate of 26.4 per cent in the space of just two years. Likewise, the thousands of businesses brought to the brink during the peak of the pandemic are a stark reminder of the exacting nature of running a business.
So what do businesses need to do to ensure they emerge as victors of the downturn rather than a casualty?
First things first, even if your online sales are strong, you should never let it make you complacent. Everyone needs a contingency plan, especially during volatile times like these. The focus should be on growing your existing client base and less on acquiring new ones – loyal customers cost the business less and are easier to retain than finding new ones. It’s 6-7 times more expensive to acquire a new customer than it is to retain an existing one, while a mere 5% increase in retention can increase revenue by 25-95%. The last thing you want is to lose customers to a cheaper competitor as they look for ways to tighten spending.
Consider what makes your product, service or brand so unique and desirable for the consumer/businesses. The same is a race to the bottom. One simple approach we have always taken at New Laboratories is to do a 360 analysis of our client’s brand and products to assess their strengths and weaknesses and then engineer in marketable elements that consumers love and will keep coming back for. This is one of the pillars of an economically sustainable brand.
Look at your business’ margins and think about what is costing you money that you could afford to cut back on. Survival is mostly a numbers game, and unexamined expenses can make or break your business. Get real with your cash flow and never assume past sales are a good indicator of future performance. In terms of costing and pricing, discuss the outlook of raw materials with your manufacturer and have a plan in place for inevitable price increases. Strong demand for commodities and supply chain disruptions will continue well into 2022 and must be factored in.
If your brand is stocked in retail outlets, don’t let retailers dictate your business strategy. Ignore the noise and follow the money; conventional wisdom might dictate that discounts and sales are the way to move forward, but that isn’t necessarily the case during a downturn. Apple, Chanel and Lush never go on sale, and neither should you if it goes against your brand’s attributes.
The secret to longevity in business is to have a strong vision of what your brand stands for. Beyond staying on top of margins and cash flow, this conviction is what will see you through. Now is the time to concentrate on the hero products that you built your reputation on. During downturns, consumers prefer to spend their hard-earned money on what is already tried and tested.
Take advantage of the time by acting quickly to build a buffer zone to insulate your business against bumps further down the road. And most of all, always look for the silver lining. Crises are great at highlighting the strengths and weaknesses of a business, and though they’re never relished, they present a great opportunity for growth and learning.
How business leaders proceed in the next few months will make all the difference between going under or establishing an enviable position of strength.