With the Bank of England predicting the longest-ever recession set to hit the UK, and whispers of a global recession on its way, the economic and financial landscape is looking bleak. Off the back of the devastation caused by the pandemic in the past few years, we’re seeing rising inflation and tighter margins all around. Coupled with the rising costs of energy and fuel, many customers are cutting back on the non-essentials to brace for a harsh winter, and retailers are seeing the costs of running a brick-and-mortar store skyrocket. One thing is certain, even more challenges lie ahead for small businesses than ever before. We’re not out of the woods yet.
When times get tough, it’s easy to panic and throw all your efforts into the most obvious strategies. Think discounts galore, and heavily targeting loyal repeat customers with messaging and comms. But, there’s more to surviving a recession than this. When stakes are high and competition is tough, we have some insights and advice for you to consider when preparing for uncertain times.
Note: This article is not intended to act as a substitute for professional financial or legal advice. It is for informational purposes only.
Questions for small business owners
Focus on the essentials
During a recession, the areas and industries most likely to experience a hit financially are luxury goods, leisure and hospitality, travel and tourism, as well as real estate and housing. This isn’t to say there’s no place for the non-essentials, only that people are likely to be much more selective with their purchasing decisions when money is tight.
This is where you have to realign yourself with two things:
- Your business’ value proposition
- Your customers’ needs
It may seem simple, but these are what make up the core pillars of your business. Your raison d’etre, so to speak.
What makes your business stand out?
Determine what it is that makes your business stand out from competitors. What keeps your customers coming back? Perhaps you run a gift shop specialising in eco-friendly products. Review your best-selling products and identify any trends or commonalities. Multi-purpose or thoughtful yet practical items could be your winners here. Greetings cards made using seed paper are a lovely example of this.
What do your customers need?
In uncertain times, flexibility is key. This can be difficult to adapt to when as a business, you require a certain level of consistency and stability to survive. So try and find a happy middle-ground.
Balancing customer needs & cash-flow
Consider introducing pre-sale options for high-demand or seasonal products to aid cash flow. Are there any repeat-purchase products you could offer as an optional subscription service as a better value alternative for your customers? Ideal products for this include:
- Hygiene and personal care items
- Edible items (esp. products with a shorter shelf-life)
- Pet supplies (treats, food etc)
- Tea and/or coffee (repeat use and purchase, also a hobby for some)
- Cleaning products (repeat use)
- Socks and/or underwear (essential & repeat use)
Subscription and pre-sale options can help you ensure you’re only buying in the stock that you need, and give you a better view of how to balance the books by providing a more stable view of the money you’ll have coming in.
Now, think about your customers’ needs, and how you can adapt to these. Are your customers the type to spend a significant amount of time browsing before making a purchase? Or do the items you sell fulfil very clear needs that see customers coming into your store with a very clear idea of what they’re coming in for? Is there room for upselling?
Consider offering credit or gift card options for those looking to spend who lack certainty. Though gift cards are thought by some to be quite a low-effort gift, they can be a more thoughtful and low-risk option for those on a tighter budget. Equally, gift cards can act as a low-effort tool to attract new customers to your business who may otherwise not have known about your business. For more loyal customers or predictable shoppers, do you have the margin to offer threshold discounts, or loyalty card schemes?
Investing in low-cost marketing materials like business cards to slip into orders, leveraging your existing customer base and mailing lists to share incentives and money-off opportunities, or even leaving reviews can all go some way to leading a steady stream of new customers to your store.
Consider your product margins
When stocking up on products, factor in product margins and be pickier when it comes to lower-margin options. Clothes are a great example of high-margin products, but perhaps focus on functionality here by going for more seasonally versatile pieces and accessories that can be layered, and otherwise dressed up or down.
Leverage the 'lipstick effect'
If you're not already familiar with it, the 'lipstick effect' is a term coined by Estée Lauder's Leonard Lauder, and refers to the idea that sales of smaller, more affordable luxuries actually go up during recessions. The brand uses this concept as its economic barometer.
Where possible, see if this also applies to your customers' shopping habits, and consider planting some around your cash register and on display in prominent areas to encourage sales. From small accessories, to snack-worthy edibles, where larger luxuries may be few and far between for many, smaller treats here and there may be on the up to inject a bit of joy into the everyday, and keep the cash flowing to your business.
Get the most out of your team
So a lot of those ideas sound appealing, but you’re struggling with capacity right now. Consider how you can multi-purpose your staff’s responsibilities. During downtime, or dedicate an hour at the beginning or end of a shift to different team members for things like social media, creating displays and signage, or updating inventory. Play off your team’s strengths and interests and see how you might best make use of their time. Negotiate working hours and pay to adjust to these new responsibilities and see how you get on.
Also, do not underestimate the power and importance of good customer service. This is of course always important, but in more competitive landscapes can mean the difference between receiving good or bad reviews, which can of course influence sales and repeat customers. Do what you can to help customers find what they're looking for, and provide suggestions and alternative options where possible to influence sales and extra spending where possible.
Maintain cash reserves
If this isn't something you already do, consider implementing a cash reserve for your business. A rainy day fund, if you will. Doing so will make your business more resilient during difficult patches, helping you cover your core costs where revenue may become tighter.
The best way to survive during uncertain times is to adapt to the changing climate. Stay informed of changing consumer habits and notice how this reflects your own personal experience, and that of your regular customers. Communicate with other businesses and make use of forums and resources like CREOATE's Retailer Hub to share any concerns or advice you may have with other businesses. A problem shared is a problem halved, after all.