While it can be riskier to launch a business during a recession than in a booming economy, some sectors and businesses survive–or even thrive–during economic downturns. Businesses that sell essential goods such as groceries, or provide health-care services or IT support, often continue to be in demand in difficult times. That’s because despite tightening budgets, people still need life’s necessities, whether it’s food or a car that runs, so they can get to work. Fulfilling such needs can offer business opportunities for savvy entrepreneurs.
Can a business be recession proof?
There is no way to ensure a business earns a profit during a recession, which is typically characterized by reduced economic growth, mass job layoffs, and stock market losses. Still, some businesses are considered recession proof, meaning they have a higher probability of weathering widespread economic slumps. Traits of recession-proof businesses include a track record of growth, increased sales, new locations, and strong name recognition.Click here to start selling online now with Shopify
During the Great Recession in the US, from late 2007 to mid-2009, some companies did well. Noteworthy examples include:
- Dollar Tree. Discount brick-and-mortar retailers like Dollar Tree gained popularity during the recession, selling basic household goods at low prices.
- Nestlé. A multinational food conglomerate, Nestlé experienced a reported 11% increase in profits during the Great Recession.
- Netflix. The streaming service Netflix experienced both increased sales and revenue.
- Walmart. Giant discount retailer Walmart’s net sales increased 6.8%, to $255.7 billion, in 2009.
9 recession-proof industries
Recession-proof industries typically remain healthy during a recession or economic downturn because they provide goods and services that large segments of the population need or want. Among the most recession-resilient industries are these nine:
1. Health care
People get sick, have accidents, and go to the doctor, whether there’s an economic slowdown or not. Health care businesses could include sellers of medical devices and uniforms, staffing agencies that provide home health care aids or physical therapists, and traditional health care providers like doctors.
Within this industry is telemedicine, a rapidly growing sector within the health care industry that experienced an uptick in the pandemic. According to the Centers for Disease Control and Prevention (CDC), 37% of adults saw their doctors or other providers remotely. Businesses specializing in telemedicine tech, for example, are also good bets in a slower economy.
2. Grocery retail and food
The recession-proof nature of selling groceries can be attributed to a simple fact: Humans need to eat. Businesses that sell staples like groceries, snack foods, and fast food tend to do well during economic slumps. In such times, people tend to cook more at home to try and save money, eat more snacks to cope with the stressors of a recession, or turn to less expensive food options. Also, food trucks fare well during recessions due to their lean and nimble business model.
3. Auto repairs
According to the Associated Press, US drivers keep their cars longer instead of buying new—even though older cars break down and need more repairs. Businesses that cater to the consumer demand to fix cars or are business-to-business (B2B) sellers of car parts are more recession-proof because they provide an essential service.
4. Information technology (IT) support
Information technology (IT) businesses that install computer systems or provide consulting services, as well as businesses that offer IT support, are consistently in demand. Even in a recession, businesses and consumers will need repairs, tech support, system upgrades, or other technology-related services when issues arise. According to Phsy.org, the tech industry as a whole added 77,000 jobs during the 2008 financial crisis.
5. Discount stores
Brick-and-mortar shops selling discounted staples such as shampoos, snacks, soaps, and house cleaning supplies did well during the 2008 recession. Often branded for its dollar price point, lower-cost goods and services were a way for consumers to try and save money.
6. Financial services
Various finance-related professional services such as accounting, bookkeeping, and financial planning are considered recession proof because taxes must be paid, investments protected, and businesses’ expenses logged and organized—even when the economy slows. For example, in the early part of the 2008 economic crisis, revenue at tax preparation provider H&R Block rose 11%, for example.
7. Plumbing and electrical services
Clogged drains, pipe leaks, and electrical wiring issues can cause problems whether during a bear market recession or bull market boom. While many plumbers and electricians working on construction sites lost their jobs or had to relocate, businesses that fix or redesign plumbing systems and do electrical work are typically busy in all economic scenarios.
8. Home improvements
Businesses like general contractors, house painters, even sole proprietors specialize in fixing, replacing, and upgrading home appliances and fixtures, among other items, and decorating the home. Carpenters and painters tend to find consistent work during economic downturns as property owners typically tackle smaller projects rather than embark on expensive renovations.
9. Pet services
Fido will not get neglected during a recession as people often find comfort in pet ownership, and use services to take care of them. Businesses from dog walking and pet sitting to creating and selling specialized dog food or apparel, can find steady customers during a recession, as they did during the Great Recession, when the pet industry experienced 5.1% growth in sales.
4 recession-proof business ideas
The steps entrepreneurs take during a thriving economy are the same ones taken during a recession. There should be a focus on providing excellent customer service, value-added goods and services, and marketing initiatives backed by a search engine optimization (SEO) strategy. If you want to start a business but are concerned about the next recession, here are four business ideas that may help you create a more recession proof small business:
1. Direct-to-consumer ecommerce virtual store
A business model that works well during economic uncertainty is selling direct-to-consumer (DTC)—procuring and sourcing items to sell yourself, bypassing the middleman and brokers who charge fees that are typically passed on to the customer. Ecommerce virtual stores might sell specialty items like car parts for older cars, eco-friendly beauty products, or vintage luxury clothing.
2. Smart home tech support
Nearly everyone lives with wireless technology, from sound systems to streaming. The number of smart homes is slated to be more than 400 million worldwide by 2024, according to Statista. Smart devices regulate heating and cooling systems, wireless gadgets, and appliances, including home security systems. Businesses—virtual or in-person—that cater to homeowners with smart device installation or maintenance needs will likely have a robust consumer base during any type of economy.
3. Small luxuries
There is a recession phenomenon called the “lipstick effect.” It’s when a small luxury item, such as lipstick, is priced slightly higher than average but considered worth the splurge. For example, a half gallon of supermarket-brand orange juice might cost $4, but at $7, the fresh-squeezed OJ is viewed as a worthwhile, more expensive treat when money is tight. Businesses that make handmade soap or sell specialty foods like medjool dates, Sichuan condiments, or single-source spices and blends, for example, could find success in a recession.
4. Services for high-net-worth individuals (HNWIs)
Typically, high-net-worth individuals (HNWIs), or people with $1 million in assets or more, have more disposable income. Businesses that specialize in services catering to this group, including personal assistant services, household staffing agencies, private chef placement, and property management, are better positioned to ride out a recession, as their typical clients have more financial freedom.
5 tips to make your business resilient during recessions
There are many steps small-business owners can take to minimize damage from a shrinking economy, from carefully tracking cash flow to building cash reserves. Here are five other moves to keep in mind:
1. Operate within a budget
Business owners should adhere to their budgets regardless of the economy, but it’s especially important to operate within a budget when sales are lagging. To get a clearer financial picture, assess all revenue streams, identify fixed costs, consider variable costs, and calculate your profit margin.
2. Keep low monthly overhead
Pause and consult with financial experts, your accountant, or mentors before making any big business moves that could increase monthly expenditures. For example, renting a larger space, hiring new employees, or leasing a business vehicle in good times could be beneficial during a recession. However, these decisions can significantly increase monthly overhead when it’s necessary to go lean.
3. Build professional relationships
Clients are often looking to cut costs during a recession, so creating strong relationships by offering discounts, perks programs, or even small personal gestures like writing a simple thank you note could be the deciding factor in retaining a business contract. Additionally, professional networking among colleagues is beneficial because it’s a two-way communication channel for business recommendations and other useful industry information.
4. Maintain a lean inventory
Stock surplus can be a financial burden when sales are weak. Extra inventory takes up costly physical space for storage, could result in product loss if it spoils or otherwise expires, and can disrupt cash flow and tie up capital. Keeping a lean inventory enables you to invest in other parts of your business, from sales and marketing to new product development. One way to face this challenge is to buy only enough inventory to meet customer demand.
5. Have an emergency fund
When business is booming, business owners have the ability to set aside funds only to be used for emergencies, one of them being slumped sales. The amount may vary depending on your business needs, but a good starting point may be enough to cover three to six months of operating expenses.
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