Recession Be Damned: Advice For Architecture and Design Product Companies

 
Name:  Gayle Shand    Company:  Albino Squirrel Concepts   Title:  Founder and Principal

Name: Gayle Shand

Company: Albino Squirrel Concepts

Title: Founder and Principal

Last week’s economic headlines sounded the alarm that the predictions of a 2020 recession could become reality. While this period of economic expansion has been the longest in our history, these gains haven’t matched those we’ve seen in other periods of growth, so thoughts of a slowdown may be more unnerving. This is especially true in our industry because the ripple effect of the housing crisis continued well after the last recession officially ended. So as the industry mindset shifts from steady growth to surviving (or better yet, thriving) in a potential downturn, now is the time to plan. 

We reached out to industry expert and business consultant Gayle Shand, to get her insight on how  smart companies can prepare. Gayle was the executive director of strategic sales at Interior Design Media for nearly twenty years, giving her a true bird's-eye view of a rapidly evolving industry. She decided to start her consultancy because she recognized that while many manufacturers had incredible grit and an appreciation for design, they lacked a deep understanding of the industry’s business model. She’s seen the architecture and design industry weather financial storms again and again, and gives some great food for thought.


Q: Do predictions of an upcoming recession ring true?

Yes, they do. When you consider the impact of current global economic instability (tariffs, political instability, etc.), China’s Belt and Road initiative, along with historical business cycles in the A&D industry, the market is due for a slowdown.  It’s the timing that is tricky to predict. Mid- to late-2020 looks likely for the A&D community. 

We do see a Wall Street domino effect that is significant to vendors in the A&D community: When Wall Street slumps, corporations pull back on hiring staff and expanding office space. They also reduce travel, which affects revenue streams of airlines, hotels, restaurants, etc. This pullback results in reduced project work for architecture and design firms. Decreased project work results in fewer specifications for companies, meaning decreased product sales.

It is noteworthy that the impact from a slowdown can vary from one industry to another. AIA's Consensus Construction Forecast projects continued growth for health and education, and that corporate and hospitality building will flatten. That said, healthcare and education are highly influenced by policy shifts, and in our current political landscape these are incredibly hard to predict.

Q: What economic indicators should manufacturers be looking for? 

Key global indicators are fluctuations in the stock and bond markets, but more specific to the industry, a company’s sales team will see signs of the slowdown first. A salesperson will know if projects are being put on indefinite hold, if design firms in their geographic area are having layoffs, if a project was lost because of competition or cutbacks, or if specific types of projects are stronger than others. 

That said, it’s important for leadership to have internal channels of communication. These will allow leadership to spot patterns across the company that point to weaknesses and opportunities. Information needs to travel from the field to leadership. And leadership needs to be able to interpret the information.

Of course all of these signals must be taken in context, many shifts are geographic and there are other factors at play. Look for patterns in product sales across a given category, and whether shifts in sales are being felt by both your most productive and least productive salespeople alike

Q: How can manufacturers survive in a recession?

Diversification is critical. During both the 2001 tech bubble and the 2008 housing crisis, companies that reimagined their product offerings were better positioned to survive and thrive. Diversification doesn’t mean that textile companies suddenly start selling furniture. It means, for example, that if 80% of a textile company’s products are specified for hotels, the textile company could diversify into workplace or wellness channels. This way, if one project channel is impacted by a downturn, the company has a portion of the business that's solid and expandable in other channels. 

Keep in mind that product diversification doesn’t have to be generated internally. Shifts in the economy and market demands can be drivers for acquisitions. Through the acquisition of smaller companies, an organization can build a safety net so it is no longer selling through a single channel or limited to a single product category.

It’s also important to invest heavily in product development. Products that are brought to market in the next six months will likely start generating revenue in one to two years. Offering fresh products and staying connected with specifiers is future planning for when the market is strong. Another reason to bring a new product to market during a downturn is that it gives your salespeople a story to tell customers when their competitors may be cutting back and not visible. 

And last but certainly not least is marketing. Increased visibility during a downturn is key. The market will eventually strengthen, so it’s critical to be positioned to quickly capitalize on growth. 

Q: What’s the best strategy for marketing in a slowdown?

Let’s start with a definition of marketing. This industry is a really diverse mix of family-owned companies and large global companies, and each thinks of marketing differently. Some think marketing is going to a trade show while others think marketing is building a website. I believe marketing is creating desire for a product through multiple channels. 

In the A&D community, marketing a brand is about visibility -- everything that brings a product or company name into the specifier sphere – and the emotion that is generated by that visibility. 

A company that has an identity that’s aligned with the customer and strong brand awareness will have more impactful marketing. Assuming these are in place, the first step of marketing during a recession is to have a good handle on cash flow so the company can create an aggressive marketing plan. 

Some companies view marketing as overhead and cut it as soon as business softens. Marketing and sales work hand in glove – cutting marketing is the same as cutting sales.  Why would any company do that?!

The next step is gaining knowledge. Where will marketing dollars get the most bang for the buck? What are the specific goals of the company’s marketing? I generally suggest companies invest time in understanding all options and create a specific plan. Generally, I suggest a national reach, a local reach and sales support initiatives. These can be print magazines, digital platforms, local trade shows, local networking opportunities, increased sales training and dynamic collateral materials. 

Diversification is smart when it comes to marketing. Companies that lean too heavily on one medium should probably change their approach. The industry is changing and marketing plans need to keep up. A company can’t keep doing the same thing and expect the same outcome when things change. 

Another reason to invest in marketing during a downturn is to get that competitive edge: when competitors reduce their marketing, it’s a rare opportunity to grab a bigger piece of the market share pie. 

Q: What’s a common characteristic of companies that can weather economic storms?

These are smart companies that have clear, consistent internal communication from the top of the organization all the way down. In a soft market, employees are scared and leaders are often less inclined to communicate what the plan is, what's going to happen, and how it's going to affect the team. It makes stressful times worse because it breeds fear. When people get scared, the culture erupts and it becomes dog eat dog. The question becomes, how can I make sure you get laid off instead of me? 

Businesses that have leaders who communicate clearly what's happening with the company and why it's being done are more likely to weather an economic downturn. For example, if a company tells a sales team to stop sending overnight packages, the team will panic that the company is in trouble. But if the company lets the team know that by cutting back on overnight packages they can avoid laying off staff, tensions subside. That type of clear communication is important to dissipate fear and keep everyone focused on the business.

These companies are also confident and organized. They know that even in a soft market, there's still work out there. Companies that are competitive in their category and know how to work with their clients will be successful. Response time is critical. If a salesperson meets with a designer who needs an answer today, that designer should get it today. Because if not, somebody else will provide the answer, and then you lose the project. 

Q: Can recessions be an opportunity for growth?

Absolutely. Yes, everyone goes into panic mode during a recession, but in every recession I’ve seen, the leaders were thinking ahead to where they would be positioned when the market started to boom again. Because when the market did boom again, they wanted to be the one that everyone came to – and they were.


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Friday, September 20th 2019 at 9am PT/12 noon ET

Web Design Strategies for Architectural Product Sales


 
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Susan Milne

 
 

If you have a question that hasn’t been answered or would like to find out more about how Epiphany can help get you specified, give me a call: 803.377.0106