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Published:3/1/2008

Are We Recession-Proof?

Call it the “R” word to avoid temping fate, or fearlessly shout “recession” at the top of your lungs …  whatever your view, there’s a lot of uncertainty out there right now that has all the pundits asking if we’re heading down into a recession.

So … some facts, data and speculation on the topic, presented in 8 points:

1. What is a recession? According to Dr. Marvin Miller over at parent company Ball Horticultural (a discussion with him prompted this month’s topic), economists classify a recession as three consecutive months of negative financial data. (The macroeconomics definition is two or more consecutive quarters of decline of a country’s gross domestic product.)

2. How long do recessions last? The National Bureau of Economic Research keeps stats on every recession going back to 1857 (www.nber.org/cycles). Since the 43-month Great Depression of August 1929 to March 1933, the longest recession we’ve had has been 16 months (twice, November 1973 to March 1975, and July 1981 to November 1982). The shortest was six months (January to July 1980). Average since the Great Depression is 11.4 months.

3. When was our last recession? March 2001 to November 2001—8 months. Before that it was July 1990 to March 1991—eight months.

4. We may not be recession-proof. Historically, it seems we’ve faired pretty well during slow economies. But will that continue? Marvin doesn’t think so. He cites structural changes to our industry, plus USDA statistics, to back up his premise that we should no longer casually assume that we’re recession-proof.

First, he recollects that, back in the “good old days” (which means as recently as the early ’80s) our industry depended heavily on cut flowers. And cut flower sales depended heavily on events and occasions—weddings and funerals, mainly. Even during a recession, you may have sent a $25 arrangement instead of a $35 arrangement, but you wouldn’t have cut it out completely.

Not so today, he argues. “Now that a lot of our sales are not tradition-bound, like funerals flowers, but a commodity, like ‘I’ll think I’ll pick up a head of lettuce and some flowers,’ is that [flower purchase] more likely to be cut when people feel they’re paying too much for food, too much for fuel? I think probably so.”

Second, he offers statistics gleaned from the past 21 years of the USDA Floriculture Crop Summary. Discounting changes that USDA made to their survey methods, there are two points in time where Marvin finds slight dips: Just after the July 1990- March1991 recession and just after the March-November 2001 recession. The latter isn’t actually a decrease; he calls it a “soft” increase. But we still saw less growth that year than the years before and after. Do we know for sure that those decreases were caused by recession? No. But we don’t know it wasn’t, either.

5. Does our customer care? Our average customer is a mid-40s female with above-average education and income. Will a recession impact her to the point that she has to choose between bread and begonias? As greenhouse owner and columnist Kerry Herndon told me, “Plants are not an expensive indulgence. People are not going to stop living altogether.”
6. Weather is a bigger factor. Okay, suppose that, due to recession, next spring is down 5%. Instead of a million in sales, you do $950,000. Wouldn’t it be much worse if it rained three out of four weekends next May? In other words, what should you really be worried about, recession or weather?

7. You can cause your own recession. If, out of fear, you cut back production by 10%, you know what? You’re going to have a 10% drop in sales. Or, as a retailer, if you skimp on stock and staff, and from the street your business looks like a dog’s breakfast, customers will shop someplace more inspiring.

8. Confidence beats gloom every time. The best business owners I know approach every spring like it’s going to be the best one ever. If it’s not, well, it won’t be because they didn’t try. And they don’t hope for good luck; instead, they make their own luck, growing fabulous plants, creating clever marketing ideas and providing service that blows the customers’ minds.

THAT is the recipe for preventing recession at your business.

--Chris Beytes