5 Businesses That Do Badly During a Recession
A recession is a global phenomenon that affects every industry in some way. It can be difficult to plan for businesses, eg You must be prepared for everything Your business model and financials. Even if you’re not directly affected by the recession, it’s important to keep track of how it affects other industries and what it means for them (and their customers).
There are many here The way the recession affects small businesses. But some industries see a bigger impact than others. Here are seven businesses that are particularly susceptible to poor performance during a recession.
1. Retail industry
Mistakes happen when a retailer doesn’t know how to pivot changes due to a recession. Pivoting involves focusing more on e-commerce and using smaller influencers instead of larger marketing strategies.
Retailers took a big hit in 2008-2009, causing thousands of locations to close, from luxury to mom-and-pop stores. This eventually led retailers to file for bankruptcy and liquidate their stores. Why retailers can sell Products that do well during a recessionThe retail industry as a whole has suffered during the past two global recessions.
Retailers are notorious for having high fixed costs and high inventory: a retailer must pay rent, utilities and insurance on store locations regardless of how much business they do or whether they have any customers. They also have to carry a lot of inventory because it is difficult to predict which products will sell well during a recession. This means that even if sales drop, retailers still have to pay for the same amount of inventory as before—making it harder for them to cut costs in response to lower demand (or increased revenue).
During economic downturns (when fewer people want new clothes or electronics) retailers also have significant costs associated with customer service due to the large number of employees working retail. It may also let employees go and cut hours to try to stay in business and cut costs.
2. Luxury brands
Luxury brands are often seen as status symbols. They cost more than other products of the same category, so only people with money or those who see themselves as rich can afford them. Luxury brands also rely on high-end marketing, which can be expensive for companies and consumers.
When times are good, and money comes easy, it may seem counterintuitive that luxury goods will struggle through a recession. However, in bad economic times, people tend to focus more on their needs; They become less likely to spend money on frivolous things like designer handbags or expensive watches. Luxury brands often suffer because they have high entry costs—a product may only be worth buying if someone else sees that person use or wear it (this concept is called conspicuous consumption).
3. Restaurants (Non-Fast Food)
When the economy is doing poorly, we tighten our budgets and cut spending. This means eating out becomes less frequent. Restaurants are already expensive businesses because of their high fixed costs, marketing costs, and labor costs, not to mention paying rent.
These things don’t change during a recession, although many people have less money in their wallets and may opt for cheaper options like fast food or home-cooked meals instead of eating out. If you have a large family, it’s easy to choose between cheap or expensive options. The more affordable option will always win.
During the first recession in 2008-2009, 4,000 restaurants closed, according to market research firms. NPD Report. Independent restaurants declined by 2% and fine dining restaurants by 7%.
4. New auto sales
If you’re in the car industry, you may be concerned about a recession. People are not buying new cars because they don’t have money to spend on expensive cars.
In the previous recession (2008-2009), new car sales fell 40%, and employment fell more than 45%.
While this may seem counterintuitive considering auto manufacturers promote their products as “in style” or whatever other buzzword they use these days, there are a few reasons why this happens:
- People want something cheaper and more practical (like used cars). A car with low miles can save thousands of dollars over time—and even more, if gas prices go up again! With so much uncertainty in our economy, no one wants to waste their money when they could be putting it into savings instead.
- Credit may not be good enough to buy a new car. If someone’s credit is damaged by the recession, they will have a lower chance of qualifying for a car.
- New cars lose value over time, so they are no longer an asset.
But oil and gas are in as new car sales decline Top industries that thrive Because of the high price.
5. Hotels and other travel-related businesses
Travel is a discretionary expense, and people cut back on travel during recessions. Both hotels and airlines are hit hard when the economy slows down. Who wants to spend $300 on a hotel room when it could lead to a critical bill? People will probably choose their priorities over fun unless they have a high paying job.
This means that many hotels will struggle to fill their rooms, even if they already have available capacity. If a hotel’s occupancy rate drops, it can lose money—even if it charges its normal rate.
As you can see, businesses that do poorly during a recession are not always what you expect. Retailers and restaurants, airlines and hotels continue to struggle. Automobile dealerships suffer when consumers can’t buy new cars, but oil companies thrive as prices rise.
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