Most investors and business owners usually want to see their business grow their revenue and profit each year. To achieve this, they need to find ways to sell more products or services, justify price increases to existing customers, reduce their costs, or a combination of all of the above.
With some careful management, clever marketing, and hard work, most businesses can manage this. However, when a recession strikes, things can change very quickly, resulting in many suffering a reverse of their fortunes with declining sales and squeezed margins.
But is it possible for a business or even an entire industry to be recession-proof, making them immune to these negative forces?
What is a Recession?
Most people will have heard the word “recession” and will typically have negative associations with it. However, it can sometimes be a little difficult to accurately pinpoint an exact definition.
Essentially, it is a macroeconomic term that describes a “significant” decline in the general economic activity of a particular area. Most economists and governments will require this decline to take place over a sustained period to prevent categorising minor blips as recessions. Therefore, a country’s GDP must usually decline for two consecutive quarters to be classed as in recession, but some organisations now also take into account monthly indicators like unemployment levels, real income levels, and industrial production.
In layperson’s terms, a recession is a reduction in the circulation of money caused by fewer people spending on goods and services, either because they are keeping hold of their cash for emergencies, or because they don’t have enough in the first place.
The biggest recession in recent years occurred in and around 2008 after the collapse of the housing market, though there have been many other occurrences throughout history.
Smaller recessions have and can take place around the world at the same time or in just a single country, as some have suggested could happen in China in recent months and years.
Can Industries Be Recession-Proof?
An industry being recession-proof means that it can buck the general trend in an economy and continue to trade at, close to, or even higher than normal. These will typically be industries that sell goods or services that remain necessary or are still seen as desirable, even as people look to tighten their belts.
Here are some of the attributes of a recession-proof business.
Humans need several basic necessities to survive, namely food, water, shelter, heat, light, and power. To get by in modern society, they also need access to transport and the internet as well as other communications services.
Businesses that sell these types of products and services can almost always be certain that they will retain the vast majority of their customers and retain roughly similar levels of revenue, even when they cut back elsewhere.
Businesses that have circulated their exposure to a wide audience are typically better placed to weather a recession than those that serve a very narrow niche or a single demographic.
The iGaming industry is a great example of this. By offering everything from sports betting to casino games, it can appeal to a very broad portion of people. Even within each category, iGaming is highly diversified. Online casinos typically boast large libraries of games split across card, table, live, and slot titles. Slot games, in particular, are where the most diversification happens as there are usually hundreds for players to choose from, each designed with a different theme to cater to certain tastes. For instance, The Aztec Explorer slot game contains imagery and sound effects that have been heavily inspired by this South American culture and the popular myths about what explorers have found in Mesoamerican pyramids. Meanwhile, the Snakes & Ladders Megadice game has been based around the classic board game.
It’s not just consumer-facing businesses that can be this diversified either, B2B companies can also simultaneously appeal to multiple types of customer. For example, Microsoft’s Windows and Office products are the market leaders in just about every region. The company sells its software and associated services to just about every industry from healthcare to education. In doing so, it’s protected from the ups and downs of any one type of customer or country.
In the Great Recession of the late 2000s, many consumers still wanted to spend money to enjoy themselves and get distracted from the world. This meant they looked to cheaper options for entertainment, so they could still enjoy themselves without spending as much.
In the UK, supermarket “dine-in” deals, like one from Marks & Spencer that let two people enjoy a fancy meal for £10, became a popular alternative to eating in restaurants. Consumers still got the majority of the experience at a fraction of the cost.
Similarly, in many countries, “budget” supermarkets like the German brands Aldi and Lidl saw their market shares rise significantly as people looked to get more while spending less.
Therefore, if businesses can help their customers save money, they could also be recession-proof.
Also published on Medium.