What to Sell In a Sluggish Economy

Written by Deborah Aarts

Two years after the onset of the Great Recession, the Canadian economy is more tortoise than hare. Craig Alexander, chief economist at Toronto-based TD Bank Financial Group, forecasts modest economic growth of 2% in 2011 and 2.5% in 2012. He expects services, particularly business services, to outperform most other sectors, and that retail and wholesale trade will do decent business, too. But Alexander figures that manufacturing, transportation and construction are in for trying times. On the whole, his prognosis, like that of most economists, is for lukewarm growth over the next several years. “Things aren’t going to be terrible,” he says, “but they’re not going to be great.”

This relatively austere forecast is redefining the buying behaviour of consumers and businesses alike, and entrepreneurs who can meet these changing needs stand to profit. The key is not to be discouraged by promises of less than stellar economic growth, but rather to focus on the opportunities that exist because of it.

Focus on financial fixes

Canadians are swimming in debt. Household debt as a share of disposable income has climbed from 80% in the early 1990s to a record 134% today, says Pedro Antunes, director of national and provincial forecasting at the Ottawa-based Conference Board of Canada. With interest rates ultra-low, this massive debt load wouldn’t be a concern if Canadians were on a sound financial footing. But they’re not. Antunes deems the situation “very precarious” for many consumers: “As interest rates start to rise, debt-service charges will grow very quickly.”

So, where’s the profit in helping people who are going broke? Consumer-spending specialists point to signs that maxed-out Canadians are seeking guidance about getting their fiscal houses in order. Fully a third of the respondents to a recent Manulife Bank survey ranked being debt-free as their top financial priority, scoring it 10 out of 10. As rate hikes push soaring numbers of Canadians into crisis, entrepreneurs can expect greater demand for credit counselling, financial planning and spending-education services.

Demand will also grow for debt-consolidation providers—especially those that differentiate themselves from the sleazy payday-loan stereotype to attract the swelling ranks of middle-class overspenders. “We’re dealing with a sophisticated [indebted] consumer base,” says Doug Stephens, president of Toronto-based Retail Prophet Consulting. “The debt-services sector has always been viewed as a step above loan sharks; there’s an opportunity for firms that remove the stigma through better marketing and more transparency.”

Emphasize value for money

Today’s consumers are interested in value above all. That doesn’t just mean discount pricing, says Stephens; Canadians want great quality or a great price. A value-conscious consumer might buy an $80 T-shirt because it’s superbly made and in a timeless style, so she can justify the expense as providing many years of use. She might also buy an $8 T-shirt because she can’t resist the price and she’s out little even if it lasts only five washes. What she isn’t interested in is a $45 T-shirt. “To portray value, you have to get out of the middle,” says Stephens.

At the low end, consumers are increasingly willing to sacrifice frills for a good price, particularly for transactional purchases. Jeremy Gutsche, founder of Toronto-based TrendHunter.com, pinpoints “unservice,” such as hotels at which guests check themselves in, as a defining trend. At the same time, many customers frustrated with the erratic quality of low-cost furniture, appliances and building materials are willing to pay more for big-ticket items that will last. “It comes down to the old saying that people are too poor to buy cheap,” says John Williams, senior partner at Toronto-based retail consultancy J.C. Williams Group.

Relieve productivity pain

For many reasons—good balance sheets due to recessionary cost-cutting and restructuring, low interest rates and a policy climate that nurtures investment—it’s a fine time for businesses to be spending. On paper, at least. Yet, many firms, spooked by tepid economic forecasts, are clinging to their cash. Other than in booming natural resources sectors, most businesses will spend lightly on capital projects and other major areas, says Antunes.

The exception is productivity. Newly lean firms are keen to stay that way. Rather than staff up much, they’re focusing on getting more out of existing assets, such as people and facilities. “It’s a good time to be selling cost containment,” says Bruce Dow, an associate partner with IBM in Toronto specializing in mobility and change management. “Any product or service that helps a business get predictability in its costs will get a good reception.”

Laura Leist, owner of Eliminate Chaos LLC, a Washington-based business-productivity consultancy, says more firms want to buy productivity boosters such as platform-agnostic email organization systems, which are in demand as employees switch among devices. But there’s a caveat: “Companies are willing to pay, but only once you’ve convinced them there’s a quick return on investment.” If you can show how many person-hours per week your ultra-efficient accounting software or automated packaging machine will save, you’ll have a good chance of loosening tight purse strings.

Embrace emerging markets

While the North American economy plods along, you’ll find rich opportunity in those emerging markets that are firing on all cylinders. The International Monetary Fund forecasts average annual GDP growth over the next five years in such populous countries as China, India, Vietnam and Indonesia of 9.5%, 8.1%, 7.5% and 7%, respectively—versus a global average of 4.6%. And if exports are your specialty, there’s plenty of room to grow, especially in Asia. See “Canada’s hottest export markets.”


Originally appeared on PROFITguide.com

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