Recession Analysis

Part
01
of six
Part
01

Economic Downturn in 2008-2009 - QSR Industry

Insights surrounding the quick service restaurant (QSR) industry's response to the economic downturn in 2008-2009,in US include experimenting improper marketing strategies, franchising more, growth in breakfast and lunch promotions, promoting more cutomer-focused deals, and exploring new consumer markets and offerings.

Experimenting Improper Marketing Strategies

  • During the 2008-09 recession, most of the quick service restaurants applied improper marketing strategies such as setting a low menu price to cope with the situation and be able to attract customers to come to eat and persuade them to order more expensive items.
  • Burger King sold its double cheeseburger for $1 when the cost is $1.1 in 2008 as a promotion strategy to attract customers to spend more on more profitable items but this did not cater in profits although resulted in a lawsuit sued by franchisees.
  • "McDonald’s, as a global powerhouse, spent 7% more on advertisement in 2008 while others cut back". The QSR also tried to introduce its new and improved drink Mc Cafe coffee during the recession and applied the marketing strategy of keeping prices down with better quality for customers without sacrificing their own profit, resulting in increased sales by 5.4% in January 2009.

Franchising More

  • Taking advantage of the "growing unit count by leaps and bounds with a combination of private-equity investment and cheap loans," most of the QSR companies in US adopted re-franchising along with turning their corporate ownership to franchisees.
  • In 2008, Mc Donald's owned 15% of corporate ownership by operating more than 2,000 of its outlets in US but turned the same reducing to less than 900 of its more than 14,000 locations recently.
  • Other companies, such as Burger King, Yum Brands, Wendy’s, Applebee’s, TGI Fridays and many others also sold corporate stores to franchisees.

Growth in Breakfast and Lunch Promotions

  • According to Harry Balzer, chief industry analyst, the growth in breakfast and lunch visits to quick service restaurants to leverage discounts at lunch and other strong promotional activities, contributed to the slight gains in the industry. This made food service traffic to advance by +0.2 % in for year ending November 2008 and consumer spending growth by 2%.
  • During the 2008-09 recession, consumers intended to spend less and considered full service restaurants as luxuries and low menu priced.
  • This tempted cheap meal menus of QSR's as necessities wherein the Industry adopted logic of “trading down” theory, giving customers affordability who could not afford to eat at full service restaurants any longer.
  • Subway launched its $5 foot-long subs of Subway which was quite a value to the customers leading to an incremental increase in sales.
  • Buffalo Wild Wings (BWLD) brought in its lower price all day menus along with luxury to enjoy televised sports while enjoy beer and chicken wings leading to an increase in profits by 34% in 2009.

Promoting More Consumer-Recognized Deals

  • According to the NPD report, quick service restaurants adopted more of some type of consumer-recognized deals leading to the 6% increase in promotion-related deal visits out of which 90% came from QSR's along with 1% slip in non-deal visits during annual period ending November 2008.

Exploring New Consumer Markets and Offerings

  • During the economic downturn, most of the QSR explored the strategy to look for new opportunities wherever they could by either expanding or altering their food menu options for consider expanding to new territory and find new audience.
  • In 2009,Dominos began to reinvent its 50 year old legacy pizza and announced a change in its signature pizza recipe and launched a million dollar spending national ad campaign.
  • The campaign was based on the study of change in the perception of people and interacting with consumers about the new improvised pizza through blogs, in newspapers, on television news shows, and even the late-night entertainment programs.
  • McDonald expanded its offering by leveraging,"higher-margin good that could appeal to a new class of trading-down consumers: coffee". The national launch of the McCafe premium coffee line-up contributed to 3.5% increase in its 2009 sales.
  • McDonald also expanded its territories and explored new market in and outside United States delivering strong comparable sales in the U.K., France and Russia regions.
Part
02
of six
Part
02

Economic Downturn in 2008-2009 - Fine Jewelry

During the Great Recession, the fine jewelry industry had to adapt to new customer’s shopping patterns and financing difficulties. Tiffany Co. thrived during the turmoil by accurately segmenting its products and consumers, while Signet used its positive balance sheet to provide credit to consumers. Smaller jewelers focused on excellent customer service and reduced costs. Overall, brands had to choose between down marketing or keeping the brand identity intact.

As Consumer Patterns Changed, Rental and Internet Retailers Grew

  • The fine jewelry industry was greatly affected by the Great Recession, generally unable to maintain revenue and profitability. For instance, in 2009, De Beers, the world’s largest diamond producer, reported a 99% drop in net profits during the first quarter of the year.
  • National chains went into liquidation (Whitehall Jewelers, Friedman, and Bailey Banks & Biddle). Three other major chains (Ultra Diamonds, Shane Co. and Robbins Bros.) restructured through bankruptcy proceedings, blaming the recession and a plunge in holiday sales. Numerous retailers, including Cartier, Fred Meyer, Macy’s, Signet, and Zales, closed some of their outlets.
  • Consumer demand decreased. It was difficult to obtain credit, and jewelers were unable to finance their inventories. A slow recovery began in the second half of 2009, with chains like Signet and Tiffany reporting sales gains (6.8% and 11%, respectively). Nonetheless, others still struggled, like Zale Corp, which endured a decline of 15%.
  • The internet started to rise. In 2009, Blue Nile was the big winner in diamond sales, with 23% sales gain. By the second quarter of 2010, the number of stores operated by the top 10 US retailers had dropped to 4,518, down from 5,978 at the beginning of 2008.
  • Economic downturns change consumer’s shopping patterns and behavior, even if they are not directly affected by the crisis. The Great Recession made consumers more frugal and changed the perception surrounding luxury items.
  • Consumers were still buying jewelry, but they were trading down. Others started to invest in costume and vintage jewelry instead of new, fine jewelry. For expensive jewelry, the effect was even more significant; Tiffany reported a greater decline in sales of jewelry above $50,000.
  • Another trend that spiked during the recession was rental jewelry. Instead of buying jewelry, consumers were renting it. Avelle, an online rental site, reported double-digit year-over-year growth in jewelry rentals in 2009.

Reshaped Value Proposition and Segmentation

  • According to McKinsey, the most resilient retailers were the ones that anticipated the recession and prepared for it by adapting, reading the trends, repositioning pricing, assortment and merchandising to safeguard existing sales and attract new customers.
  • Tiffany was one of those companies. In 2008, Tiffany's holiday sales fell 21%, given that wealthy consumers were reducing spending. It was a big hit since November and December sales typically represent about 80% to 85% of its fourth-quarter sales. In 2009, the brand refocused and changed its tactics. By 2010, it had quadruplicated its earnings.
  • While some jewelry retailers offered broad discounts, which reduced their margins, Tiffany's approached the situation with careful segmentation and above-average marketing efforts. It realized that fashion jewelry sales were dropping, however, bridal jewelry (e.g., engagement rings), was recession-proof. Therefore, it dropped the prices of its high-end fashion jewelry by 25% but increased the price of engagement jewelry by 10%.
  • Like most jewelers, the company reduced its advertising costs (from 7.2% to 5.9%). However, the allocation was still higher than the average jeweler. Tiffany's CEO stated that "We're going through a business cycle. There will eventually again be a rising tide of affluence around the world."
  • The company used the downturn to forge meaningful relationships with new clients, while still maintaining the old ones, which resulted in Tiffany Co. actually gaining market share during the downturn. As a result, the net revenue rose and margins were stable. While other jewelers struggled to post a profit in the challenging environment of 2009, Tiffany's earnings from continuing operations increased by 12% year-over-year. Tiffany's pretax margin was four times as high as the typical U.S. specialty jeweler.

Brand Identity

  • When sales start to decline, fine jewelry companies are tempted to move down-market to survive. This move may reduce margins, and confuse and alienate loyal clients. It also means the company will enter new territory, filled with stiff competitors who have a better knowledge of cost-conscious consumers, during a time of budget reductions.
  • Although the strategy may generate some profits initially, in the long run, there is a strong possibility that the brand will find itself in a weaker position when the turmoil ends. Ms. Widlitz of Pali Research explains that the recession forced luxury players to make one of two decisions, "You either chase the consumer downstream or you stay the course. Tiffany is staying the course.
  • Another company that decided to hold its ground was De Beers. It initially reduced its marketing efforts in 2008, but when research showed that diamonds represented enduring value to consumers, De Beers doubled its Christmas advertising in 2009. Although Christmas sales in the United States softened compared with the previous year’s, prices were stable and trends in consumers’ desire to buy diamonds remained healthy during the time, as reported by the Harvard Business Review.

In-House Credit Programs

  • Signet’s strategy to improve sales during and after the recession included providing credit to customers that meet consistent authorization standards “at a time when other sources of consumer finance are contracting and many specialty jewelry competitors are finding third-party provision of credit to be increasingly expensive.”
  • The company used in-house, proprietary credit underwriting standards, as it believed it reflected its customer base more accurately than third-party scorecards. Decisions were made based on the overall impact of the business than external assessments. Each credit application was individually evaluated against set criteria.
  • About 53.5% of the US sales in 2009 and 53.2% in 2008 were made using in-house customer finance programs. The finance program helped, according to its 2010 annual report, to establish long term relationships with customers and complement marketing strategies by enabling a greater number of purchases.

Customer Service as a Priority

  • When it comes to fine jewelry retailers, service is the main differentiator, followed by selection of brands and styles and quality certificates. To cope with the recession, jewelers reported that improve their customer service was the number one strategy to survive the downturn.
  • Pennsylvania jeweler David Mazer declared, “We are paying more attention to existing clients and how we can increase the business they represent, inclusive of referral business from them.”
  • Other strategies to survive the downturn reported by jewelers surveyed in 2009 included buying less new inventory, being creative and innovative with new designs, using alternative and less expensive materials, lowering price points, and avoiding loans.
Part
03
of six
Part
03

Economic Downturn in 2008-2009 - Agricultural Equipment

Some insights surrounding the agricultural equipment industry's response to the economic downturn in 2008-2009 are increased global marketing efforts, new products brought to market, increased dealer-customer marketing, increased promotions and after-sales efforts.

Increased Global Marketing Efforts

  • John Deere responded to the economic downturn by expanding their marketing and growth efforts in international markets.
  • Similarly, Caterpillar also credits their performance during the recession to continuing their efforts in emerging markets. They deliberately targeted China, who was making significant infrastructure investments.

New Products/Technology Brought to Market

  • In 2009, John Deere attempted to mitigate its loses by expanding their product ranges and entering new business segments with new technology in their products.
  • These expanded divisions allowed quicker expansion and response to market.
  • Kubota also responded by introducing new products to market. They responded quickly to what their dealers told them about the changing market and introduced low horsepower tractors to help smaller farmers.

Increased Dealer-Customer Marketing

  • In Scandinavia, Caterpillar increased its efforts on dealer-customer marketing. This "Sales Blitz" consisted of "two days of worksite and office visits with integrated rental and new machines sales teams."
  • Kubota worked very closely with its dealers to enable them to offer the best products and services possible to customers, responding quickly to market fluctuations and needs.

Increase in Promotions

  • Kubota doubled-down on promotional activity and efforts, which helped increase sales of combine harvesters and rice transplanters.
  • Furthermore, dealers acknowledge that specialty knowledge is key for sales, especially during hard times. Customers do not always know what equipment or brand they want/need, so employing trained staff was important for keeping up sales.

After-Sales Efforts

  • According to one dealer, focuses on servicing offerings allowed them to remain afloat during the downturn.
Part
04
of six
Part
04

Economic Downturn in 2008-2009 - Semiconductor Manufacturing

Some companies in the semiconductor manufacturing industry (such as Intel) responded to the economic downturn between 2008 and 2009 by increasing their advertising expenditures. Other companies in the sector, like AMD, mulled the opposite direction by cutting down on spending. Nvidia Corporation engaged in a marketing activity that was described as a "nasty marketing trick" during the 2008 to 2009 recession.

Increased Marketing or Advertising Expenditures

  • Some companies in the semiconductor manufacturing industry responded to the economic downturn between 2008 and 2009 by boosting their marketing spend. A typical example is Intel.
  • Intel increased its marketing, general and administrative expenditures from $5.452 billion in 2008 to $7.931 billion in 2009 and $6.309 billion in 2010, respectively. Before the recession, Intel's marketing, general and administrative expenditure was $5.401 billion in 2007 and increased steadily throughout the recession. Intel Corporation is the leading semiconductor manufacturing company in the United States of America and engages in making, marketing, as well as selling integrated circuits used by computing and communications companies.
  • Between 2008 and 2009, Nvidia Corporation's marketing and advertising expenses improved by $22.3 million due to an increase in the number of "advertising campaign[-]related activities" as well as trade shows in 2009.

Marketing Tricks or Tricky Consumer Interactions

  • Some companies in the semiconductor manufacturing industry responded to the economic downturn in 2008 to 2009 by engaging in consumer interactions in a manner that their efforts got classified as marketing ticks. A typical example is Nvidia Corporation.
  • While the 2008 to 2009 recession lasted, Nvidia Corporation silently added a new product known as the GeForce 310 among its marketed products. Experts revealed that the GeForce 310 had the same specifications as another product earlier marketed by Nvidia (the GeForce 210). Market analysts explained that this marketing move seemed like a "nasty marketing trick" because it was apparent at that time that NVIDIA had nothing to offer in place of AMD's Radeon HD 5000 semiconductor series.
  • Nvidia is one of the top ten companies in the semiconductor manufacturing industry in the United States.

Increased Spending, Purchase and Investments by Some Manufacturers

  • Following the harsh effect of the 2008 economic downturn, Intel relied on internal cash to fund a plan known to be its "largest-ever investment" spending on a "new manufacturing process." This increase occurred at a time its rival AMD, announced 1,100 cuts in jobs. Intel planned to increase the value of its purchases and investments as a strategy to survive the recession and revealed that companies could never save their "way out of recession."
  • Intel's stocks had fallen by about half since between December 2007 and November 2008. However, the company's strategy during the recession was to increase spending. According to Intel's sales and marketing chief (Sean Maloney), the company has been through recession a couple of times and accumulates cash in "good years" to spend in times of recession.

Decreased Spending, Purchase and Investments by Some Manufacturers

  • While some manufacturers like Intel increase spending to tackle recession, other companies in the semiconductor manufacturing industry cut down on their spending due to low consumer purchases. One of the companies that reduced investments or expenditures in the 2008 to 2009 recession is AMD.
  • As consumers demanded fewer personal computers during the 2008 recession, AMD posted quarterly losses beyond its expectations. The United States firm (AMD) decided to cut its spending by cutting down on manufacturing activities and laying off some staff members. AMD has its headquarters in California, USA.
  • Nvidia halted a development contract for a new campus, and the construction project was "put on hold" in 2008. Consequently, Nvidia dropped "restructuring[-]related" payments to $0 in 2008.

Increased Amortization

  • Some companies in the semiconductor manufacturing industry increased the worth of intangibles purchased or acquired via amortization.
  • Acquisition of "related intangibles" by Intel was valued at $6 million in 2008 and increased to $35 million in 2009. After 2009, the value dropped to $18 million in 2010.
  • Between 2009 and 2010, Nvidia increased its amortization expense by $4.2 million. Between 2008 and 2009, Nvidia increased its depreciation and amortization expenses by $15.4 million due to the "amortization of intangible assets" acquired via the acquisitions of Mental Images as well as Ageia, Technologies, Inc., and other capital expenditures.

Fluctuating Research and Development Spending

  • Several companies in the semiconductor manufacturing industry altered their spending on research and development during the 2008 to 2009 economic downturn. One such company that towed this path is Intel. Intel's expenditure on research and development was $5.722 billion in 2008, fluctuated (slightly decreased) to $5.653 billion in 2009, and increased to $6.576 billion in 2010.
  • Nvidia Corporation increased its research and development spending by $164.3 million, representing an increase of 24%. The company also added recruited 500 personnel to serve with departments associated with research and development functions.

Research Strategy

The study examines some data-backed insights surrounding the semiconductor manufacturing industry's response to the economic downturn in 2008-2009 in terms of marketing, purchasing, or consumer interactions. The research evaluates resources published by government agencies such as the United States Department of Energy, Office of Scientific and Technical Information, interactive historical publications like MacroTrends, documents of semiconductor manufacturing companies like Intel, news resources, as well as scholarly and academic articles. None of the uncovered resources revealed data-backed insights on the entire semiconductor manufacturing industry's response to the economic downturn in 2008 to 2009 specific to the United States. The study includes insights related to the response of significant companies in the semiconductor manufacturing industry in the United States following the economic downturn of 2008 to 2009. Due to the timeline between the 2008 to 2009 recession and 2020 (over a decade), the study includes some resources older than the usual 24-month credibility range. The research identifies and highlights data from at least two top semiconductor manufacturing companies for each insight to illustrate how the industry responded to the economic downturn between 2008 and 2009.
Part
05
of six
Part
05

Economic Downturn in 2008-2009 - Fashion

During the Great Recession, fashion (and other) retailers that found success had several things in common. Among these are: the fact that they identified and occupied their headroom spaces, they closed needs-offer gaps, they analyzed their costs and reduced bad costs, they embraced new and creative marketing avenues and strategies, they focused on budget-conscious consumers’ needs, and they never stopped innovating. Notably, some of these findings are true for overall retail, as well as fashion retail; this information highlights the retail industry with a specific focus on fashion retailers.

Retail Before, During, and After the Great Recession: In-Brief

  • Just before and during the Great Recession, retailers struggled; same-store sales had significantly decreased for a number of chains, and many retail chains began closing stores or slowing the acceleration of their growth by not opening planned new stores. Additionally, many smaller brands (as well as many large brands) closed their doors for good during this time.

Successful Retailers Occupied the “Headroom” Spaces

  • Harvard Business Review notes that identifying and focusing on the brand’s headroom, or “market share you don’t have minus market share you won’t get,” was one way retailers stayed afloat during and after the Great Recession. This meant that they identified the “switchers,” or customers not loyal to their brand or its competitors, who might be willing to shop from the brand with the right incentives.
  • Brands that weren’t as successful in keeping their finances in the black were those that spent less time identifying and focusing on the switchers, and more time putting forth a variety of initiatives to attract new business. Since most of their efforts weren’t focused enough on the right audience target, or they misidentified their headroom spaces and turned their initiatives in the wrong directions, this led to high expenditures for little return, and ultimately, led some retailers to close their doors for good.
  • One specialty fashion retailer began to experience sales losses due to increased competition, and since their board could not agree on the proper response, they conducted a deep analysis of their customer base, customers’ habits, and motivations for shopping/buying. The information from this analysis led them to change “specific elements of their total offering including product assortment, store environment, and space layout,” which led to a better customer experience overall and made it easier to attract switchers (and therefore, new business).

Successful Retailers Closed the Needs-Offer Gaps

  • The gap between what a customer is looking for and what a retail brand is offering is called the “needs-offer gap;” to best survive an economic downturn, “retailers must constantly work to identify and close their needs-offer gaps to win as much of their headroom as they can.” In this way, they gain market share and offset lost sales due to reduced consumer spending.
  • One problematic response to the daily sales data (what sells, what doesn’t) is that “it conditions merchants and store managers to stock up on what’s selling well and pare down on what’s not,” which may lead to a huge gap between the brand’s offerings and what their customers want leaving an unfilled gap in the headroom that could lead to significantly decreased revenue for the brand.
  • Retailers who conducted research on needs-offer gaps and made adjustments based on that information (rather than just handling it with typical methodologies like analyzing only historical data) saw more success during this time of economic distress.
  • One department store studied by HBR during and after the Great Recession filled this gap and avoided greater financial troubles than most of its competitors. The fashion/apparel portion of the retail was seeing decreased sales, which led to decreased space productivity (as compared to the rest of the store’s space utilization). Typical mindset toward optimization should have led management to reduce the amount of space taken up by apparel, reallocating to better use.
  • However, the retailer’s headroom was huge and “disproportionate to the sales it was realizing,” with even loyal shoppers making apparel purchases elsewhere. Rather than going with optimization, the retailer studied the data of what customers were buying elsewhere, compared it to the store’s offerings, and adjusted their offerings to better meet customers’ needs. Through these “targeted merchandising initiatives” the retailer closed their needs-offer gap, and within nine months, “the apparel division’s comps went from negative to positive, inventory turns and margins improved, and record operating profits were generated.”

Successful Retailers Evaluated Costs and Reduced “Bad Costs”

  • During times of economic downturns, retailers struggle with cost-to-income ratios and often face the choice of cutting costs or continuing to experience declining margins; often, management opts to cut costs across the board (ostensibly to save money), but this slash-and-burn technique fails to reward them. This is largely because many do not analyze the differences in costs identifying which costs will help with sales and which are unnecessary (and therefore could be cut without increased loss to profits).
  • Using the traditional method of cutting costs across the board (without deep analysis) might initially improve cost-to-income ratios, “but sooner or later revenue will begin to suffer and margins will come under further pressure, thus defeating the very purpose of taking out the costs in the first place.” Alternatively, retailers who found greater success did so by evaluating each set of costs separately figuring out which were “good costs,” or those essential to customers like that are “associated with providing convenience, a particular shopping experience, a distinctive service, or a better range of goods than competitors offer,” and which were “bad costs,” or those that added nothing to customer experience.
  • HBR notes that retail brands that were superior in identifying which costs were which and in reducing the bad costs (or at least reducing their impact on overall budgets) found the greatest success during and after the Great Recession. These brands moved away from traditional “activity-based costing” and toward “customer-benefit costing,” and through their analysis, were able to streamline their budgets and focus on costs that enriched consumers’ lives to the point of increased sales.

Successful Retailers Embraced New/Creative Marketing Avenues

  • With digital and social media still being fairly new during and after the Great Recession, many retailers didn’t know how much power those avenues would give them during the tough economic times. Some luxury apparel brands understood this early, however, and it helped keep their doors open and their profits intact.
  • One example was Tory Burch; launched in 2004, the brand saw immediate and continued success, even through the low economic points. They had solid products and a strong, creative marketing team that employed digital media to help them earn and cement their place in the industry. They retooled their website and relaunched with social media fueling their expansion across the globe.
  • Oscar de la Renta was another example of strong use of digital and social media during this time. Their Twitter account featured not just products and merchandising info, but lifestyle content including “fashion, yoga, the atelier, music, and summering in the Hamptons,” which helped consumers connect on a more-personal level with the brand. Though this is a common trend for brands now, this was novel during this period. A third example of using what is now a common approach but what was then a novel approach was retailer Coach. The used social media to drive sales for the new line, Poppy, pulling in fashion bloggers whose content earned them chances to win Poppy merchandise.

Successful Retailers Focused on Budget-Conscious Consumers

  • During the Great Recession, many people struggled with unemployment (or under-employment), lost their houses, and suffered under enormous debt, so fashion and other retail purchases were not high on their lists for necessities. Some brands, especially those with lines already catering to budget-conscious folks, found success during this period largely because they kept this basic tenet in mind consumers have limited funds so give them what they want most for a low price.
  • Aeropostale was one fashion retailer that sailed through the Great Recession, earning “double-digit gains and an optimistic outlook.” While their competitors (which offered similar but pricier clothing) struggled, this brand connected with new consumers, many of which were on stricter budgets than they’d ever been on. They focused their marketing on “teenagers trying to look cool on a budget (as well as their parents),” and launched a new affordable line directed at grade-schoolers. This focus on serving the largest customer base in the country gave them success.
  • Another clothing company, Buckle, had a “strong portfolio of 75 [popular] brands” was also able to keep their sales high during the recession. This was due in part to their diverse line, but also in part because of the increases in sales in their budget-conscious lines of clothing. Additionally, many of the brand’s products are casual denim, which never goes out of style no matter the economy. The diversity in their lines, the focus on fashion that didn’t break the bank, and the strong base product helped keep their profits increasing when so many others were seeing decreases.

Successful Retailers Continuously Innovated

  • While many brands struggled to keep their current lines selling, other brands realized their success would come from continuing to innovate despite budgetary concerns. This was especially true in the luxury clothing segment, which was forced to be creative to keep their market share, and which led to “some game-changing ideas that forever changed the luxury industry.”
  • Ralph Lauren, a brand lauded for its success during the Great Recession, innovated by opening up a shopping experience location in Manhattan. The huge store was built to look like a mansion and featured the brand’s top collections in home goods, fashion, lingerie, and jewelry. This was one of the first experiences for shoppers, which again have become much more commonplace in today’s market, and gave regular and new shoppers a “slice of luxury” at a time when everyone was being forced to be ever-vigilant with every dollar.
  • Barneys is another brand that did well during the recession, in part because of the development of the new line of all-organic casualwear sold under the brand Loomstate. Management used Barneys’ impressive clout to persuade other designers to do the same (make clothes from recycled/discarded or organic materials), used the store’s marketing to “push a tough though quirky environmental message on its customers,” and pushed hard for other fashion houses to rethink their consumer (and world) ethos, all of which endeared them to customers and kept them making sales.
  • One brand that struggled terribly during the recession was American Apparel. The brand had been going strong and was seen by many “genres and tribes” of American consumers as “the ultra-fashionable shop that you found in every cool location.” Unfortunately, during the economic downturn, they failed to continue innovating and missed several major opportunities to take their lines to the next level and keep their profits from sinking. Fashion industry experts stated that this failure to innovate led consumers to see the company as a “one-trick offering,” but not a brand that would keep them fashionable in the long run.
Part
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Part
06

Economic Downturn in 2008-2009 - Auto Parts

Auto parts retailers saw increases in revenue during the Great Recession, unlike most other markets experienced at the time. Successful auto parts retailers found opportunities with new demographic segments by spending money on improvements wisely, increased their focused on DIYers, didn’t suffer from internet-sales losses, made smart operational decisions, managed product stock intelligently, and took advantage of increased service options, upsells, and decreased numbers of dealers. All of these reasons (and more) allowed the brands in this market to not only stay afloat, but also see amazing success, especially when compared to other industries during this time.

Auto Parts Retail & Auto Repair Markets Saw Gains Where Others Saw Losses

  • According to multiple experts, the Automotive Aftermarket Industry (parts) and the related industry of Auto Repair are both recession-resistant markets. The recession-resistant nature of this market is one of the reasons why stocks for auto parts brands like O’Reilly and AutoZone saw major gains during the recession, while auto manufacturers saw huge losses. For some brands, economic downturns provide opportunities for increased revenue because the core needs of people fundamentally change during these times, as do their abilities to pay for what they need.
  • Interestingly, the Automotive Aftermarket Industry experienced a double-dip during the Great Recession; the first was the first year of the downtown, and the second was the following year (each year of the downturn brought a separate dip in sales/revenue for brands in this market). Notably, however, during each dip, this market still saw increases in overall revenue whereas other markets were seeing major downturns throughout the recession.
  • Even though this industry took less of a financial hit than others, it still did not see the increases seen in the previous recession from the early 2000s, which made it harder on the market overall.

Successful Auto Parts’ Retailers Found Opportunities w/ New Demographic Segments

Successful Auto Parts’ Retailers Spent Money in Smart Places

  • History has shown that when people have less money, they tend to hold onto their cars longer, which means they’re more likely to need work done and purchase auto parts; alternatively, they get their cars serviced and the repair shops purchase the parts needed (keeping both industries in the black).
  • During the Great Recession, experts at top brands, like Auto Zone, noticed significant increases in shoppers that fell into higher incomes categories, like those making $100 K a year or more. Typically, these folks weren’t auto parts store shoppers, but during this severe economic downturn, people from all walks of life had to tighten their belts, and this led to increased opportunities for brands in this industry.
  • One of the ways Auto Zone increased its appeal to those in higher income brackets was through a store re-design. Previously, the stores had mimicked competitors’ shops looking like places that “grungy hobbyist-oriented” car guys hung out; the re-design created the “colorful, brightly lit” stores “filled with superfriendly salespeople” the brand is known for today, all of whom will use their computers to print easy-to-follow directions for customers. Although the effort was costly, the return was worth it for the brand, as evidenced by their success during the recession and continued success today.

Successful Auto Parts’ Retailers Focused on DIY Aspects

These Businesses Did Not Suffer from Internet Losses

  • In times of economic downturns, like the Great Recession, people tend to become more DIY (do-it-yourself) types, and fixing their own cars often falls into this category, especially considering the high prices of new cars and fixes done in auto repair shops. During this time, one study found that “two-thirds of consumers said they were likely to keep their car longer than they would have otherwise.”
  • Additionally, whereas many brands suffered great losses when internet retailing hit, auto parts stores were somewhat immune. According to one expert, when people want to change the oil or brakes on their vehicles on Saturday, they don’t want to order the necessary parts online and have to wait to get the jobs done; the convenience of auto parts stores makes it easy to get the part and do the job, and still be able to spend time with family the rest of the day.

Successful Auto Parts’ Retailers Made Smart Operational Decisions

Successful Auto Parts’ Retailers Managed Product Stock Well

  • During the economic slow period for the auto parts market that came before the Great Recession (when it was easier and cheaper for consumers to buy a new car than fix an old one), many auto parts brands struggled, and for a few brands, these struggles continued on through the downturn. Some made upgrades to their systems, like Advanced Auto Parts’ computerized repair and how-to guides, while others made smart operational decisions. Each of these helped keep the brands in business when so many others were failing.
  • Auto Zone is one example of a company that re-evaluated some of its operations to streamline and refine them toward greater efficiency, and thus, better cost-to-income ratios. One move was to ask their private-label brand (Duralast) to provide them with better discounts on volume purchases. In addition to this, they revised processes to “keep inventory carrying costs low.” These moves resulted in the brand being able to “throw off $650 million in cash” in 2009.
  • Another change the brand made was to avoid overstocking products; this was easy for them since their products do not expire. They moved from each store carrying bundles of every product to using local hub stores; these were the larger stores in the area and were equipped to hold extra inventory and set up so that they could deliver parts to other stores locally as needed. Over time, they increased the hubs, expanded their inventories there, and updated processes to “better serve commercial customers;” all of these changes resulted in helping them maintain the best profit margins in the sector (at 49.7%).

Successful Auto Parts’ Retailers Took Advantage of Renewed Emphasis in “Fixed Ops” & Upsells

Successful Auto Parts’ Retailers Took Advantage of Decreased Dealer Numbers

  • During the Great Recession when many auto manufacturers and dealers were seriously struggling, smart brands began to rely more heavily on repair services, or “fixed ops,” to augment their revenues. Automotive News noted that, previously, “many dealers we interviewed had paid only lip service to fixed ops,” but during the downturn, “those same dealers were laying out detailed plans to add service capacity.” Because of these increases in services, many auto parts’ manufacturers and retailers increased their roles to include more big commercial clients.
  • One way that auto repair shops (and by extension auto parts retailers) improved business was to increase the education of their customers. When a customer came in for one part or service issue, customer service representatives would question them on related parts or other issues they might be experiencing, and often upsell the customer on additional parts or services.
  • Auto parts retailers also took advantage of related industry trends; increased fuel pricing was one example. This gave auto parts retailers the opportunity to increase their focus on products for fuel efficiency improvement, and increase sales in that product segment.
  • Another way was to take advantage of the huge losses of auto dealers during this time; the number of these went from about 21 K dealers in 2007 to about 17 K in 2011. Fewer dealers meant increased businesses for auto parts stores, according to experts.
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Sources