What Goes Up in a Down Economy?

When any economic bubble bursts, a recession is likely to follow. Economists have been monitoring economic factors and signaling a coming recession, and potential bubbles that will drive it include the student loan bubble and the resurged subprime lending bubble. Yet while some industries suffer or even collapse during economic downturns, others survive and even thrive during recessions. Here’s what we can learn from them.

Not everyone experiences the recession in quite the same way, but there will always be products and services that we are willing to spend money on or that we just need, regardless of the current economic state. We will always need accounting services and funerary services, regardless of the state of the economy. Healthcare also tends to keep growing during economic recessions.

But do we really need lipstick? Cosmetics tend to outperform the overall economy in good economic times, but even in bad economic times the industry continues to do well. Beauty products seem to have recession-proof qualities, with a long history of success during economic downturns in different countries with different economic systems. During the Great Recession, cosmetic items outperformed the wider market by 45% and sales in the U.S. have increased even through the last three recessions.

When there’s not much cash to spare, we are more likely to spend those extra dollars on ‘vices’ like alcohol, candy, tattoos, and cigarettes. During the last recession, sales of alcoholic beverages in the US increased by $2 billion annually from $185 billion in 2008 to $187 billion in 2011.

So how can you take a lesson from these recession-proof businesses and prepare your business for tough economic times? Even if you aren’t in the cosmetics or beverage alcohol businesses, it’s totally possible to get your business recession-ready:

• Monitor spending and enforce a budget; spending should be 10% less than last year on non-payroll expenses
• Don’t carry excess inventory
• Shed work that is not related to your core competency and strengthen your marketing efforts

Understanding the ebb and flow of the economy can be as simple as following its cycle, and recognizing the signs of a coming economic recession can help you get ahead of the curve on preparations. You don’t want to get caught unprepared in the next economic downturn. This infographic details the telltale signs of impending recession, what kind of businesses survive, and how your business can stay on top even in a down economy.

Source: Great Business Schools