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Recession news is a blow but bright spots are on the horizon

Caroline Nodder

Befitting this week’s dismal weather, the economic forecast we had all been dreading finally arrived on Wednesday when it was revealed we have indeed suffered a double-dip recession.

Befitting this week’s dismal weather, the economic forecast we had all been dreading finally arrived on Wednesday when it was revealed we have indeed suffered a double-dip recession.

For the second consecutive quarter, official figures show a contraction of the UK economy, by 0.2% in the first three months of 2012, creating recessionary conditions once again.

This will be a real blow to the fashion sector, not least because the very news of a recession can further dent consumer confidence in itself and deepen the economic gloom – a classic self-fulfilling prophecy.

Our recent Retail Market Report showed how critical consumer confidence is to most retailers; indeed it was the number one business concern among the 329 retailers we surveyed.

This latest news is sure to panic many consumers into tightening their belts again, so what can retailers do to entice customers into parting with their cash?

One danger in the coming months is the issue of cash flow. Fashion retail in particular is a very cash-reliant business and because of the buying cycle much of retailers’ cash is tied up in stock, either in the supply chain or on the shelves. If consumers stop spending then the obvious solution is to discount to clear stock and create cash to power the business. But obviously discounting also shrinks margins.

It takes a steady nerve to shun the discount route, but those that do manage to take the short-term hit of falling sales on the nose and look at other ways to drive sales can leave their business in a better position when the economy does recover. Taking this hit on the bottom line does depend on having cash reserves and it is likely that this latest setback might well be the final straw for some businesses that are already struggling.

For those that can afford to weather the storm, sales will depend on having new, unique and exclusive product, great customer service, offering ‘treat’ purchases to cheer up consumers, capitalising on special occasions like the Jubilee, stocking quality product that will last and creating strong brand awareness.

Those businesses that thrive will be brilliantly managed, well planned, have the best people and a constant eye on what consumers are buying.

And even for the best operators, the return to economic growth is going to be slow going, with the majority of retailers we spoke to saying they were not expecting any significant improvement until the end of 2013 at the earliest.

However, as with most recessions, by the time they are announced the country is usually in a better place already and we have a lot to look forward to this year – we just need to show shoppers the bright side.

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