January 21, 2009

Business Cycles

Prior to the Iraq War, business performance moved in cycles.

Every 3-4 years, new highs or new lows were recorded.

Both Lands' End and Eddie Bauer moved in similar cycles. 1992 - 1993 were good years. 1994 didn't meet expectations, followed by a lousy 1995.

1996 was good, 1997 was good for awhile, followed by a horrible 1998, and a better 1999.

Then the dot.com bubble popped in 2000, and 9/11 took a bite out of 2001, with the corresponding recession lasting into 2002.

In other words, there were ups and downs, not predictable, but cyclical.

Cycles keep us humble. We were never more than a few years away from a downturn, we remembered the lessons of the last downturn.

Now take a look at Nordstrom performance, from 2003 - 2007. You don't see a cycle, do you? In fact, you see unbridled success, a meteoric rise into the stratosphere. Online, the trends were even more dramatic --- online, we could do no wrong, we were brilliant!

Or so it seemed.

Maybe the reason this recession is going to be so severe is because we have to correct for more uninterrupted years of success than we corrected for in the past.

One thing is certain. We are re-learning the importance of business fundamentals.

Businesses don't succeed because they have a brilliant social media strategy, or because they embraced mobile marketing, or because television ads are funny.

Businesses succeed when inventory is managed so well that there are few markdowns to be had during a downturn..

Businesses succeed when capital expenses are proportionate to conservative forecasts of profit. Businesses succeed when profits are reinvested, as opposed to borrowing in anticipation of future business success.

Businesses succeed when advertising and marketing dollars are viewed as scarce resources, not as a budget line derived by multiplying net sales by 0.20.

We're going to be in much better shape, once the scars of this recession heal. Humble marketers are smart marketers.

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