Empower Your Local Manager, Prevent a Recession

November 2008 By Peter Berghammer, CEO Of Copernio Holding Company

multipage

There are several lessons retailers should learn from the current economic nightmare: Realistic government data on the true state of anything problematic are released much too late in the game, verbal and written analysis from “officials” and “experts” are often skewed to paint a picture that’s rosier than the real story, and remedies usually arrive when the problem is beyond repair.

Here’s another good lesson: The best way retailers, especially those with multiple locations in different markets, can protect themselves in the future and begin to build new survival strategies is to empower local managers to act quickly and implement initiatives based on what they see in their local markets. The reasons behind this thinking become clear when you look at different components of a recession.

First off, let’s try to answer the burning question: How long will the recession last? That’s hard to answer today because, more than in the past, we have to factor in the performance of the global economy and the wrinkles caused by each country and region that contributes to it.

Different regions and micro-regions within the same country, as U.S. retailers have experienced in their markets, also add to the

unpredictable and varying data. Because we’re so tightly tied to a global economy, we’re faced with far-reaching factors that impact the duration of a domestic recession. That’s why the people who have the best read on the true information are those who work in a particular market.

Now let’s tackle the issue at the heart of the matter: How to define a recession. We’ve all been told a recession is a period of two or more consecutive quarters of negative GDP (growth domestic product) growth.

But that definition is incorrect and the reasoning becomes clear when you look at the indicators being measured. If that definition was true, the recession of 2001 would not have been an official “recession” because there were not two quarters of consecutive negative growth. Instead, there was “declining” growth.

Smart retailers, manufacturers and distributors who keep a close eye on regional sales trends would have noticed back then a slowdown in consumer and commercial spending patterns months before the government announced a “recession.” The bottom line is that local and regional retailers usually know when trends hit their markets long before any government agency acknowledges it.

Negative GDP numbers are far from being the sole indicators of a recession, mainly because they are subject to constant revision and reformulation. That’s why traditional analysts believe recessions are defined by two or more quarters of declining growth not negative growth.