When the growth gets tough, the tough ones invest

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“Your mind might be saying, ‘run, run’, but if you will have the courage to go forward during this time, you will find that there’s actually a better chance for you to rack up business.”

Last month, Inditex, the parent company of Spanish fashion chain Zara, declared it would stick to its targets despite slowing growth. As the group strains its growth limits in its home market, 90 per cent of new retail space planned for this year will be accumulated abroad. Inditex chief Pablo Isla seemed satisfied with the company’s result and was confident that the investments made now will bear fruit in future.

The month of May had similar tough news for a Wigan retail giant as it revealed that sales have dropped by more than eight per cent. Bosses of JJB Sports admitted they faced ‘very challenging’ trading conditions, but said they were confident about the future as the business slims down.

Only weeks after announcing the closure of 72 of its 400-plus stores, JJB has already completed the process and as part of its business review, increased the frequency of deliveries to its stores, introduced a store staff incentive scheme, and opened a training academy in Wigan.

Roger Lane-Smith, JJB’s chairman, said: “Whilst the retail environment remains very challenging, we have taken significant action to strengthen our store portfolio and continue to invest to improve the quality of our stores and product.”

The company has also committed to open more combined fitness clubs and superstores, a format that has so far proved successful, while surviving stores are currently being re-branded and made over.

The heads of both the companies might as well have been thinking ‘run, run’. They, however, chose the other option. Hence, when the growth got tough for these two companies, they decided to invest.

In an article, ‘Bring on the Recession’, Robert G Atkins and Adrian J Slywotzky (senior partners of Mercer Management Consulting) say that many senior managers, especially in North America, have little or no experience steering their firms through a recession. So, when the next recession arrives, they’re likely to react instinctively and hunker down with fixed cuts across the board. If you’re lucky, that’s what your competitors will do.

They’ve explained the simple strategy that managers use to trade up during slowdown. Thus, ‘during a slowdown, instead of cutting costs, plan investments that will help in future growth, as economic downturns offer a unique opportunity to accelerate that transition and dramatically improve your relative strategic position.’

For evidence, great business leaders use slowdowns to capture the strategic high ground. In the 1990-91 downturn, Michael Dell perfected his company’s telephone ordering and demand-pull production system. At Intel, CEO Andy Grove accelerated investments in cutting-edge plant and equipment, and launched the ‘Intel Inside’ brand-building campaign. Both companies then powered out of the recession and have since captured the bulk of the profits earned in their respective industries.

Must-know while negotiating slowdown:

– ‘Cost-cutting alone is no formula for victory.’ The business houses, specially the retailers – talking and finding solutions to tackle recession and slowdown – must start preparing now. Plan to accelerate your transition to your next business design.

– Be sure to assess your customers for long-term profitability. Your best customers today might not be the best during or after the slowdown.

– Once you know the customers you intend to serve and the value propositions you intend to offer, focus on costs and get going on all fronts, viz. advertising, CSR, building customer loyalty, and participating in events to prove your identity.

– Recessions make the impossible dramatically possible. If you know what your company needs to succeed tomorrow, a recession is the best time to buy or build those assets.

By Ranjan Kaplish

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