Nobody wants to hear the dreaded word “recession” when it comes to the economy. But it’s a word that’s been popping up with increasing frequency in recent months. As inflation rates have risen, the average American has struggled to keep up with the increased prices.
Given this economic picture, many people are asking, “Are we in a recession?” The answer to that question is not as simple as it might seem. A recession can be defined in a number of ways and can involve many different factors.
The US economy has not faced a declared recession since 2009. In the past decade, the business landscape has changed dramatically. Namely, the rise of e-commerce platforms has dramatically changed the way many businesses operate on a
There are three important questions that need to be answered in relation to the current economic situation and the near future: Are we in a recession? What can we do in a recession?
And how could a recession affect e-commerce?
Are we in a recession?
To answer the question of whether or not we are in a recession, we must first define what a recession is. In general, a recession is a prolonged period of weakness or a slowdown in economic activity. A more concrete definition would be consecutive quarters of negative or weak GDP.
However, when it comes to determining whether or not the US economy is officially in recession, that is NBER’s responsibility. The National Bureau of Economic Research is responsible for determining when a recession started and when it ended. The official answer to the question “Are we in a recession?” is “No” as of December 2022, according to the NBER.
While we’re not currently in an official recession, almost all experts agree that a recession is inevitable. The economic downturn has begun and is expected to continue. However, some experts have expressed cautious optimism about the looming recession. A Stanley Morgan report notes that a strong job market and booming auto industry are encouraging signs and could help
What happens in a recession?
What typically happens in a recession is that economic output falls significantly. This is most evident in a decline in employment and consumer spending. The cost of living exceeds what individuals can sustain, resulting in less disposable income for spending. Likewise, operating costs for companies are rising, forcing companies to cut jobs, hampering their production.
The exact causes and circumstances of a recession are never the same. The 2008 recession was caused by a collapse in the housing market. The current downtown economy is largely the result of skyrocketing inflation rates. Right now, the Federal Reserve is focused on bringing inflation rates under control as the biggest step in healing the economy.
Consumer spending during a recession decreases but doesn’t go away completely. Rather, households and individuals are being forced to adjust the way they handle their money. While the reality of a recession is never pleasant or desirable, it can often lead to positive changes in the future. Businesses are being forced to adapt to a new economic reality. Additionally, the changes they make often result in better practices in the long run.
Those eyeing an imminent recession may need to ask themselves an additional question: how long does a recession last? And that, unfortunately, is the most difficult question to answer.
How long does a recession last?
A recession can last indefinitely. The last recession (the Great Recession) lasted from December 2007 to June 2009, about 18 months. This was a
What to do in a recession?
Almost all companies have to cut spending during a recession. The key is to make smart, informed decisions about which areas to trim. Resources will be limited, so allocating them effectively is crucial. This often means understanding the needs of your market during a recession and how to meet them.
How to prepare for a recession
Preparing for a recession depends largely on good financial management and smart spending cuts. Managing your finances responsibly is a staple for everyone
A common concern before a recession is what to do with stocks. If you own stock in a company, you might be tempted to sell it before the recession hits in order to have instant cash. But that’s often an unwise, short-sighted decision. Selling your stocks ahead of a recession often means selling low. It is often better to wait for the market to recover so you can sell your wealth dearly.
When it comes to spending cuts for your business, you can’t neglect the needs of your consumers. For example, many companies make the mistake of cutting their research and marketing budgets during a recession. However, this undermines the essential goal of staying relevant to the needs and requirements of your customers.
During a recession, consumer spending habits change dramatically. For businesses to stay afloat, they must understand the evolving needs of their consumers and meet their demands. Of course, this is easier for some companies than for others. Some may have it (relatively) easy and do well in a recession. While others will struggle with that, for example
Which companies do well in a recession?
The companies that tend to do best in a recession are those that sell essential products or services. A drop in consumer spending during a recession does not mean that spending will go to zero. Instead, people are being forced to change the way they spend their money.
Things like food, clothing, and personal items continue to do well. Everyone has to eat, dress and take care of themselves. Essential services like auto repair, plumbing, and heating also tend to do well. But these obvious essentials aren’t the only companies doing well in recession times.
Even small luxury items or services can be in high demand during a recession. Consumers are less likely to spend heavily on grand luxuries or extravagant vacations. but People need to relax and do something in their free time. Camping and hiking gear, for example, remains popular during a recession. Books, video games, movies and other forms of entertainment also remain strong.
How to make your business recession-proof
For companies without
As previously mentioned, marketing remains very important during a recession. This helps create a connection between businesses and consumers. When consumers see that your business understands their situation, they are more likely to buy from you.
By understanding your customers’ needs, you can also make more informed budget cuts. Your business should identify which products or services will and won’t remain profitable during a recession. This allows you to put more resources into those viable products while reducing resources elsewhere.
Is Ecommerce Recession Evidence?
The question of how a recession will affect e-commerce remains a mystery. The e-commerce landscape as it is today has never gone through a recession before. However, it is safe to say that e-commerce itself is not
Competing with other e-commerce companies is also a hindrance during a recession. Lower consumer spending means less spending overall for all competitors in an area.
How to Run an Ecommerce Business in a Recession
Some of the general business tips above also apply to ecommerce businesses. Create value for your business and focus on that
An optimized online shopping experience can increase sales and profits for companies online. This can take shape in a number of ways. Optimizing prices and not setting identical prices for similar products can help customers make purchasing decisions.
Ongoing sales and special offers can also generate a lot of value. Buy One, Get One deals are a great way to move inventory that’s not selling well in the recession. Ecommerce stores can also leverage their side display when making sales. The listing of the original price and the sales price next to each other, differentiated by font size or color, visually emphasizes the savings for the customer. Studies show that this visual contrast helps customers appreciate the savings, making them more likely to complete their purchases.
For more tips on optimizing your ecommerce store for more sales, see our article Using the Psychology of
