While some industries are still recovering from the pandemic’s financial impact, there’s another growing threat on the horizon – global recession.
According to projections of top global economists, several economic factors, such as high inflation and tightening monetary policy, will plunge the global economy into recession in the second half of 2023. Businesses of all sizes are warned to prepare for reduced cash flow, lower consumer spending, and operational changes.
Over the past seven decades, the world economy has gone through four global recessions. Experts predict that the upcoming global recession will be worse than the 2008 Great Recession. As we all gear up for this incoming business challenge, you may be wondering, “which industries will be hit the hardest during a recession?”
We’ve listed the top 5 industries most affected by recession in 2023. We’ve also provided some recommendations to help businesses protect their bottom line to weather this economic downturn.
5 Industries Most Affected by Recession and How They Can Thrive During an Economic Downturn
1. Retail
According to economists, the retail industry is among the industries most affected by recession in 2023. If retailers don’t start building recession-proof strategies early on, they may be forced to shut down their operations.
The impending recession will see a massive change in consumer spending. The majority of customers will save and cut their budgets for discretionary purchases. This means retailers who sell non-essential goods will be significantly impacted.
In addition, the decline in consumer spending will result in an inventory surplus. When customers stop purchasing, items sit long in warehouses and end up not being sold after exceeding their projected demand. To clear excess inventory stock, retailers will sell them at a lower price, putting a strain on their profit margins.
The impact of recession on the retail industry goes beyond decreased consumer spending. It’s also forecasted that the industry will face unexpected layoffs in 2023. Due to low consumer spending and inventory surplus, retailers will lay off employees as a cost-cutting measure to reduce their overhead costs.
Solution
There’s no definite day as to when your business will be hit by the recession; in fact, some are already feeling it as of today. That said, it’s important to take precautionary measures as soon as possible to mitigate the negative financial impact. Here are some strategies you can implement to make your retail business recession-proof:
Embrace digital transformation
During the recession, grow your Ecommerce presence and establish stronger digital connections with customers. If you don’t have an Ecommerce site or live chat support, now is the best time to invest in these digital solutions. Not only do these improve your customer’s shopping experience, but they also equip you with a strong digital infrastructure.
Focus on existing customers
The cost of obtaining new consumers is far higher than the cost of retaining existing customers. Therefore, you should be focusing on retargeting customers who have already purchased from your business. You must have email customer support to keep your loyal customers up to date with your latest offers.
Build a better inventory forecast
Having a better inventory forecast allows you to accurately predict how much inventory you can sell in a specific period of time. You should conduct inventory forecasting to anticipate a product demand by SKU on a monthly, seasonal, and annual basis. This will help you prevent stockouts and a potential inventory surplus.
Outsource non-core functions
Outsourcing non-core functions such as product data entry and product catalog management allows you to save on labor costs by up to 70%. This is true when you outsource to countries like the Philippines with competitive wage rates and an even more competitive pool of Filipino professionals.
2. Restaurant
The restaurant industry has been one of the hardest-hit industries during the COVID-19 pandemic. Due to consecutive closures and reduction in service capacity, the industry lost $130 billion in revenue in 2020. If business owners fail to prepare, they are more likely to experience a ‘deja vu’ effect in the 2023 recession.
Some restaurants may cut back on expenses, by reducing everything from labor costs to raw materials and equipment. When operating and manufacturing costs increase, businesses ultimately pass the burden to customers via price hikes. Consequently, customers will be less likely to go out, which results in low sales for restaurateurs.
Solution
As one of the industries most affected by recession, restaurateurs must prepare themselves to deal with the dual hit of labor shortages and supply chain challenges. Here are some ways for restaurants to stay profitable during an economic downturn:
Implement food-delivery services
Your customers may not dine at your restaurant due to transportation costs. To offer them greater convenience, offer food-delivery services. By allowing customers to place their orders anytime and anywhere, they are more likely to make repeat purchases and become loyal customers.
Adjust menu and pricing accordingly
Restaurants must be open to updating their menus and pricing to reflect current food trends while providing meals at a cost that customers are willing to pay. They should also continue innovating their menus and offer creative “limited-time offers” that attract customers.
Consider outsourcing your customer support
It’s critical for businesses to keep a close eye on their financials during a recession. Rather than hiring customer support staff in house, try outsourcing your order taking customer support. When you outsource, you can save yourself from having to pay employee benefits and hire only the services you need on demand.
3. Travel & Tourism
One of the industries most impacted by the Covid-19 pandemic is travel & tourism, with a total revenue loss of over US$ 2 trillion in the last couple of years. Although the industry recovered this year, the 2023 recession is forecasted to slow down travel demand, affecting the airline and hotel industries.
Among all industries in this list, the travel and tourism industry is expected to face the lowest consumer spending. As customers reduce non-essential spending, travel spending is one of the first to be cut off, while they prioritize food and utilities.
Solution
Although travel may not be a priority for most people, it doesn’t mean your travel agency should halt its operations. Here are ways to create demand for your business and thrive during a recession.
Double down on marketing efforts
Attracting travelers amidst recession is not as difficult as it was during the pandemic. But with the increasing popularity of hybrid work and Ecommerce, it’s become more important to market your travel offers on your customer’s preferred communication channels such as Facebook, Instagram, Youtube, and Tiktok.For instance, you can leverage graphic design for attractive ad images and you can have social media support to respond to customer queries 24/7.
Nurture your existing customer base
You need marketing strategies that nurture your relationship with your existing customer base. Don’t let your customers forget about you, even if they don’t prioritize traveling at the moment. You can stay on top of their minds by sending regular newsletters about the best travel destinations using email marketing campaigns.
Outsource phone answering service
A travel phone answering service can bring a human touch to your customer service. When customers get in touch with your business over the phone, they are more likely to convert and inquire more about your service and offers.
4. Real Estate
Real estate is one of the industries most affected by recession in 2023. Recession is a time of uncertainty and fewer people will have the means nor the desire to purchase homes. Because of this, properties may stay on the market for a longer period of time. Moreover, as people struggle financially, there’s an expected increase in mortgage delinquencies and foreclosures as homeowners are unable to make their loan payments.
A recession is not necessarily a good time to sell real estate. Aside from lower demand for homes and investment properties, there’s also an increase in interest rates and construction costs driven by inflation. These will discourage many would-be home buyers from investing in real estate and force businesses to sell properties at a lower price.
Solution
If you’re in the real estate business, there’s more you can do than just passively wait for the economic slowdown to pass. Here are some ways to weather the storm.
Build a better marketing strategy
Due to lower housing demand, your competitors are likely to withdraw from the competition scene. Take advantage of the lean competition by marketing your business and building brand awareness. Be present on multiple social media channels and use different types of marketing videos to stay on top of your prospects’ minds.
Operate your business digitally
A financial crisis is the perfect opportunity for your business to adopt a nearly all-digital operation. Your property tours can be replaced by Matterport or Asteroom tours, and client meetings can be done via Zoom or Skype sessions. You might also want to create a website for your properties and use paid ads to attract quality leads.
Minimize your overhead costs
Make sure you have control over your cash flow when profits aren’t coming in as quickly as they usually do. You can minimize your overhead costs by outsourcing and removing staff from your payroll list. When you outsource, you can turn your variable costs into fixed costs since your vendor covers your office space, equipment, and training. Not to mention, you can hire on demand, so you can save on costs during your business downtime.
5. Manufacturing
Like many other industries, the manufacturing industry may also not fare well during an economic downturn. Due to an uncertain supply chain, labor concerns, and raw material price fluctuations, the industry will certainly struggle to compete and remain profitable.
With the looming recession, several manufacturers are now worrying about transportation costs, wages and salaries, energy costs, and a shortage of workers. Based on the historical data from the last recession, the industry must prepare for decreased production order volume and massive layoffs.When it comes to GDP and profitability, manufacturers typically experience a recession more severely than the rest of the economy. But the good thing is the industry has experienced faster recoveries compared to other sectors.
Solution
As one of the industries most affected by recession, manufacturers must prepare as soon as possible for the 2023 economic downturn if they want to survive. Here are ways manufacturers should adopt to build resilience.
Strengthen liquidity and balance sheet management
Before the economy slips into a recession, manufacturers should be cautious about liquidity and balance sheet management. That means they should start increasing their cash flow and determining which types of investment will yield the maximum returns.
Building robust systems integration
A product information management (PIM) system is among a few examples of integration for advanced manufacturing companies. PIM systems can centralize and structure large amounts of product data by keeping it in one place, accessible to all key stakeholders. As a result, it helps streamline your operations and reduce expenses and employee effort.
Outsource and reduce labor costs
Manufacturing companies feel that during a recession, they must cut back on their business processes, including sales and marketing, as well as research and development. But it’s smart to take a closer look at what processes need to be protected and figure out which function can be outsourced to save on labor costs.
Build a recession-proof business by outsourcing to the Philippines
Outsourcing is the number one cost-cutting measure a business can leverage during recession. When you outsource to low-cost countries like the Philippines, you can save up to 70% on labor costs due to the country’s competitive wage rates and skilled workforce.
KDCI understands your business challenges and is here to support you throughout your outsourcing journey. As a leading Ecommerce outsourcing company in the Philippines that offers scalable staffing solutions, we help businesses scale down quickly during the recession. Among the services we offer are Ecommerce, finance, creative design, customer support, digital marketing, and web development.
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