In Retail, Fat and Slow Suffer Deepest Wounds

In Retail, Fat and Slow Suffer Deepest Wounds

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In any economic downturn, certain sectors will be hit harder than others. We’ve seen this numerous times in the United States as the farming, steel and aerospace sectors felt the weight of economic challenges. The same weight is now pushing down the retail sector.

Retail felt similar pressures in the 1980s, but this downturn is significantly different. Unlike the 1980s, in which economical realignments forced consolidation and change, this recession is driven by the constriction of consumer credit and the deep, root cause.

For the past 25 years, consumer electronics in particular has been the beneficiary of easy access to consumer credit and home equity credit. Unlike earlier trends within the CE segment, this one was quite different.

With each societal and technological change in the U.S. – the urbanization of the early 1900s, electricity, a post-WWII economic boom, the space age – easy access to credit has been one of the key elements in the ascendancy of consumer electronic. The days of easy credit access, however, is now over.
No amount of interest rate adjustments, shifts in the banking system or tweaks to the economy can do anything but provide slight modifications or adjustments. What is required is another major paradigm shift.

This recession is unique in the severe impact it has had on retail. Any recession carries with it a disproportionate number of layoffs, closures and bankruptcies. What is different today is that CE companies are not being hit equally. Those with the leanest models are impacted the least. While the impact on those companies is still severe, it is manageable. Recessions have a way of picking out the fattest and least nimble of the herd. Those that are fit, flexible and fast escape the worst fate. A combination of strengths can prevail, but any weakness in an organization will be magnified many times over. This recession has had an uncanny instinct of hurting those with flawed organizational structures.

This maxim also holds true for government intervention. While it is still too early to forecast winners or losers on the global scene, questions rage around what recovery model we should adopt and what specifically should we do to help local economies? The latter question has been consuming Europe for months as national governments seek to take action to help their own, while only giving scant notice of what the impact might be on the E.U.

The first question however is being asked in the United States and, oddly enough, in China as fears mount that the direct government input into its economies might not be enough to stem the tide of bad news. Both the U.S. and China, for example, have been questioning the very economic models upon which their nations were built.

The question remains what individual organizations should do to weather the storms. Unfortunately, many of the policy questions will offer little short-tem relief. Any wait for external assistance might be too long for some. Companies that are able to adapt, change and move in rapidly fashion stand a good chance of riding out the downturn and emerging in a much stronger position.

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