Recession proof businesses

17May10

Trying to digest the news at the moment is a difficult process even with the political landscape getting a little clearer by the day. The decision makers may have changed (thank goodness) but the outcome isn’t going to be pleasant, or much of a surprise. I can’t see anything other than tough love coming our way and, to be honest, we will probably feel the better for it, albeit some time in the distant future. VAT will go up (I’ll happily rant about this in relation to barbers in the not too distant future), cuts in the public sector will need to be made, interest rates can only go one way, who knows what that will do to house prices, unemployment will probably soar and as for Sterling, well, don’t be planning any trips to America for a couple of years. My view is, and I am no expert, that even if we avoid the oft quoted ‘double dip’ recession the best outcome for most of us is going to be a few very tough, slow and grey years ahead.

With this in mind we have been reviewing the Hoffi business plans and making sure everything is appropriately positioned, makes sense to have a chat with the bank now while there is still some spring optimism in the air and also ensure that we are keeping an eye as opportunities raise their heads – on the barber training side for example. That said it did get me thinking which high street businesses are best placed right now for the recession, challenges of technology, cheap overseas labour and the likely UK position in the world a few years from now (ie probably not too rosy). What business, if I was starting out tomorrow, would I back right now with some confidence?

Business wings have an article on this which helped my thoughts and helped get it down to a few examples. Using that and a few ideas of my own I have created my own scientific (ish) rating system, scoring each option out of 10 in terms of their safety, potential to deliver decent returns and most importantly the attraction to me. So taking the average high street;

Convenience Store / Newsagents
Pro’s – easy to set up, major objective is to know your local market and stock accordingly, limited skills required, cheap labour, if inflation kicks in (and I think it will 2 years from here) you can raise prices but the rent should be fixed so helps push up profits. Get a chain together and there would be some value to negotiate better buying terms and a decent exit value.
Con’s – Supermarkets continue to stretch their reach into local markets and I can’t see that slowing down as their shareholders continue to demand growth in ever more difficult markets. It’s getting tough to sells cigarettes which must make up a chunk of the revenues and newspaper circulation is in global decline so can you really fight that from a village street corner?
Rating – 4/10 it’s a tough business that will just get tougher as the big stores continue to expand.

Funeral director
Pro’s – There are only three certainties in life and one of those will need a funeral director – recession, internet or otherwise.
Con’s – Come on, it’s a funeral director
Rating – 1/10 safe economic choice, zero fun

The winner in all conditions

Pound shop
Pro’s – The obvious solution, if in doubt go as cheap as you can. Tat shops they may be but they always find punters. The harder things get the more attractive this might look.
Con’s – If the Far East suddenly decides that it isn’t the best idea to ship 5p plastic hammers half way across the globe for a 2p profit then where will the stock come from? I also doubt this is the best option, to me when times are hard you don’t kill your margins, you focus on your niche, on what you do best and you price accordingly, value doesn’t always mean cheap. Limited upside if the economy does brighten up quicker than I predict.
Rating - 2/10 only marginally higher than funeral director as plastic hammers are probably more fun than, well, dead people.

Birthday gift / Crafts / Clothes / baby shops
Pro’s – Lifestyle businesses. Nice idea if you have the money behind you, always more fun to be in business doing something you are passionate about and if you can bring that passion to the shelves clients will respond. Easy enough these days to create a niche and utilise the web to reach beyond just your high street.
Con’s – The web, whoever thought birthday cards would go online and yet they have in a big way (see the moonpig story for one). Most people would also accept that these business are hardly recession proof. Lets be honest when the job goes or cash is hard to get hold of you can probably manage without the organic baby booties or the African hand crafted wooden wine bottle stand.
Rating – 4/10 Great to pass the years post retirement but it wont fund the pension to get you there in the first instance

Sandwich / Coffee  shop
Pro’s – Decent hours, the established demand for good coffee and sandwiches ‘to go’ is probably too high and established now to be curtailed by harder times. Easy enough to stamp some individual mark on the business and bring passion to the fore. People will cut down on some things but still want ‘affordable’ luxuries (a nice latte to start the day).
Con’s - A lot of competition and the big brands will likely squash you the moment they decide to open up in your area with their ability to get stock at bulk discount and run shops at a loss far longer than you probably can.
Rating – 7/10 But you really need to pin down the identity before the brands notice how well you are doing and come a knockin.

Barber
Pro’s - Most of the above. Would you not get your haircut due to financial distress (and we are talking everyday men cuts here not £100 lady specials), you might go one week longer and not have the cut throat shave but 99% of men wont stop getting their hair cut until baldness does the job for them. Decent hours and easy to get started. Need really good staff and keep on top of their training. It  can’t be replicated online, in China, replaced by a machine or of any interest to Tesco! Once you are established and doing a good job its a very cash generative business.
Con’s – If you don’t do an excellent job with customers and staff the risk remains that others will be keen to move in.
Rating - 10/10  -Remains the winner for me in all economic conditions.

So that proves it, following a purely scientific process whilst listening to the new Black Keys album, Brothers (which is excellent by the way), I am happy that I am still in the right business for the economic challenges that may lay ahead. Having said that I hope George O and Vince are going to spend a little more time working on the economy than I just did!

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Tags: Barber shop, barbers, business launch, coffee shop, convenience store, decline in sterling, Entrepreneur, funeral director, newsagents, pound shop, recession, recession proof, sandwich shop, start ups