By Rohan Widdison, Founder & CEO of New Labs
There’s more trouble on the horizon as businesses grapple with ongoing economic uncertainty, characterised by dampened consumer spending, supply chain disruptions, soaring operating costs and crippling labour shortages. The IMF’s ominous warning that ‘the world may soon be teetering on the edge of a global recession’ has all but confirmed the situation on the ground. This is alarming news by any measure, but resilient businesses know a thing or two about buckling down when times get tough, and none are more well placed to plough through a downturn than seasoned players in the beauty industry.
Don’t be fooled, the beauty industry is more than just skin-deep. And there’s a lot to be said for businesses that can thrive in one of the most competitive and saturated environments during normal times let alone disruptive periods like this. After the fallout of COVID, businesses are increasingly wising up to the fact that changes can crop up hard and fast, and there’s no longer a baseline for ‘business as usual’.
Brands that have the most longevity in the beauty space have pivoted from challenge to challenge. They’re adaptive too – beauty businesses were amongst the first to embrace social media newcomers TikTok, and are keen adopters of digital technology and ecommerce. Additionally, the beauty industry is incredibly high tech with massive research and development departments, sophisticated manufacturing processes and innovative marketing practices.
So what secrets can a long-standing beauty retailer reveal about running a business that lasts, especially when the economic outlook is trending downwards?
Businesses must make every dollar count to stay recession-proof
Beauty businesses know that when budgets are lean (as they often are), every dollar must count towards a tangible outcome. Organisations might think they’re already doing everything they can to account for every dollar spent, but unless they periodically go over all expenditures with a fine-toothed comb, they’re potentially overlooking budget-draining charges. From marketing campaigns with unclear and unmeasurable objectives to too much unused office space costing the business in rent, there’s always something that can be cut back on.
As a general rule, businesses should always have enough cash on hand to stay in operation for at least three to six months. Running a bare-bones operation is great for finding out what’s really contributing to the business and what’s not. Trimming the fat on non-essentials will also help build a buffer to insulate the business which in the event of a downturn will help offset unexpected costs. Cash flow is king, and those who can’t balance their numbers will struggle when sales start to dry up – this is particularly true of those who overly rely on past sales to predict their future performance.
With the ongoing surge in shipping and packaging prices, as well as consistent demand for commodities and raw materials, it’s wise to stay in touch with suppliers and manufacturers to keep on top of new developments. Talk with your suppliers on how you can address cost blowouts and address supply chain pain. They are best positioned to advise in the state if the markets.This is important as businesses want to avoid being caught unawares when there’s a shortage or price hike in the works.
Nurture core customers and invest in hero products to stay afloat
Customer loyalty and goodwill is paramount for businesses caught in the midst of a recession, though this can only be retained if the business fulfills its promise of value and consistency. In a downturn, customers must justify every purchase and tend to spend on what’s familiar and reliable. Businesses need to go back to the very basics and put their best performing products on customers’ radars. They also need to invest more into improving these products or at the very least, keep them consistent to demonstrate their value to the customer.
Lego is a great example in demonstrating the power of simplicity and consistency. The company reached an all-time high in profitability during the 2008 recession due to its strategy of sticking to its core product while maintaining the product’s high quality. During the downturn parents wanted to purchase a traditional toy that would outlast its cheaper plastic counterparts. When Lego expanded globally during the GFC, it reaped the rewards for the versatility and quality of its toys, boosting its profits by two-thirds.
As well as investing more in core products, businesses must consolidate existing client bases to ensure their repeat patronage. Research shows that customer retention is a much easier game than customer acquisition. It is estimated to be 6-7 times more expensive to obtain a new customer than it is to hold onto an existing one. A slight 5% increase in customer retention however, can increase revenue by 25-95%.
To survive brands must hold onto their authenticity
In a recession panicking businesses would be mistaken to slash the prices of their products and services to increase sales. Though it may be tempting, the key question to ask is if a discount aligns with the brand’s values. Purpose-driven companies are proven to grow three times faster and gain higher market share than competitors. Having a strong vision of what the brand stands for and why it exists is the organising principle that drives a business forward.
Neither do purpose-driven organisations permit themselves to be easily swayed by others when it comes to matters of strategy and direction. It’s the reason why the likes of Chanel and Apple never go on sale and it’s also the reason why long-lived businesses are able to bring in new custumers while keeping their existing base loyal. A business with confidence and conviction wins the support of its stakeholders and enables its own success.
Beyond authenticity and reason for being, there’s the matter of organisational mindset. The philosophy that propels a business best during economic downturns is one that is agile and adaptable. Start-ups like Groupon, Uber, Airbnb, and Square were all founded during a recession. Each organisation had a compelling purpose on top of an executive body that held onto its start-up mentality long after the business became established. This positioned them excellently to overcome future challenges.
As undesirable as they are, downturns are not only a natural part of the economic cycle, they also give the unexpected gift of illuminating a business’ strengths and weaknesses. For those invested in the long game, a recession is an inevitable part of doing business. It’s important that businesses keep a sense of perspective and not allow short-term setbacks to derail them from their goals. With the right contingency plans in place, businesses will not only weather the recession but potentially gain a strategic position of strength as well.