Wednesday, April 16, 2008

The accelerating effect of a slow economy

We often hear, at time like these, statements like, "So-and-so was driven into bankruptcy by the recession."

Putting aside whether we're in a recession or merely facing a slowing economy, I'm often tempted to reply that strong companies seldom go under because of a recession. A small, underfunded business may be ruined by having a bad year, but the major corporations that go under during a recession generally do so because they had serious weaknesses before the economy went south. The bad economy merely exposed their weaknesses and/or accelerated their decline.

They may be in trouble prior to the recession because of poor management or because of weaknesses in their sector or for other reasons, but in any case they are in a position where circumstances that would normally merely call for some belt-tightening instead prove far more serious.

In thirty-plus years of watching the department store channel (it's where I started in this business, though I got out as soon as I could), I've noticed that when the economy slows, the channel drops lower than the economy; then when the economy improves, we see news stories proclaiming that "The Department Stores Are Back!" But come the next downturn, the department stores once again drop, and each time the drop is lower than the last. In March, a bad month for retail in general, the department store channel was -- surprise -- the worst of all, down 11%.

I think we'll see something similar with newspapers over coming years -- a slow decline generally, accelerating each time the economy sours.

No comments: