How the recession can create opportunities and threats for businesses and industries

INTRODUCTION
Within the business cycle, a stage called ‘recession’ exists. It happens after a ‘boom’ and is identified when GDP falls for two consecutive quarters. It’s characteristics include falling levels of demand, output, profits and consumer confidence. There is also higher levels of unemployment and few people invest. It would first appear that a recession would only create threats and dire consequences for most businesses however, there are some businesses that do thrive in these circumstances. I will be exploring a business that has thrived and a business that has fallen victim to the recent recession.

OPPORTUNITIES - PRIMARK
One company that has reported a large 10% increase in profits is Primark. This company has built its reputation and business on being low cost and low quality. While this may not be an appealing choice of store to purchase clothing and home products, this company has proved it can be successful even when consumer’s disposable income is low. Their strategy is clearly thriving as the company have yet to report any losses, only profits.

Primark’s simple business strategy is key to its success in the recession; cheap labour, cheap raw materials, cheap prices for consumers. During a recession many people curb their spending to survive and do not spend as much on more luxury items, they settle for lower quality items. With the company priding themselves on being low cost and offering women’s shoes for as little as £2.00, their success in hard times was inevitable.

The business did not spend on expensive advertising ventures, they relied on word-of-mouth, which would obviously contribute to the company's early profit. The business also rely on cheap labour to be able to pass on the cheap prices to customers. Though Primark insist they follow high levels of ethical standards, questions are raised about the validity in the claims of the company. A recent BBC Panorama program uncovered sweatshops in India where children were paid around 60p a day to sew sequins and buttons onto clothing destined for Primark shelves. Children as young as 11 years old were found within the cramped sweatshops. Is this not against the ethical standards of the company? Primark retaliated by dropping the suppliers that were involved in the employment of the Indian children.

It could be argued that Primark has not taken an opportunity in the recession; they have always been low cost and low quality and have not changed this to survive the recession. The recession itself provided Primark with the opportunity to increase its profits by simply relying on its strong retail reputation.




THREATS – LAND ROVER
Evidently businesses to make extreme losses in the recession and they are mostly the businesses that produce and sell luxury items. Land Rover have recently experienced severe falls in consumer demand and spending and have therefore had to take certain measures to ensure their survival.

When Land Rover reported a record 50% fall in demand, drastic action had to follow. Actions in the shape of redundancies, reduced working hours, part time working and closures of factories. The fall in demand was due to the decreased amount of disposable income consumers had to spend on more luxury items. They were therefore left with alternative options i.e. keeping their current Land Rover rather than upgrading, purchasing an old model, purchasing a cheaper make of car all together.

Another contributor (which was out of the hands of Land Rover) was the rising cost of fuel. Land Rovers notoriously consume large amounts of fuel and are therefore expensive to run compared to other smaller cars. Even though fuel is a necessity to consumers they will try and cut back as much as possible to retain their capital.

The actions taken by Land Rover could potentially create a ripple effect; suppliers who depend on the demand of Land Rover for their raw materials may find themselves in financial difficulty if the business stopped buying from them. Or vice-versa, if a supplier was to go out of business then Land Rover may struggle to replace them in terms of price or quality.

CONCLUSION
To conclude, I believe the ‘middle’ businesses (selling middle ground products) are often the under the most threat in a recession, examples of these would include ‘Zavvi’ and ‘Woolworths’. It is the ‘high end’ and ‘low end’ businesses that survive because for ‘high end’ businesses, i.e. luxury products/brands, have the profits and established economies of scale to survive – they are strong enough. With regards to ‘low end’ businesses, i.e. budget products/brands, their market increases as more people spend less.

The success of a business either surviving the threats that a recession poses or taking advantage of the opportunities it presents, it must have capital, efficient ideas and resourceful strategies.

BIBLIOGRAPHY
• http://www.guardian.co.uk/business/2009/apr/21/primark-announces-profit-rise
• http://www.telegraph.co.uk/finance/financetopics/recession/3463256/Ripples-of-recession-spread-out-from-factory-floor-to-barber-shop.html

• http://www.dailymail.co.uk/news/article-1028499/Exposed-Primarks-sweatshops-pay-children-just-60p-day.html