Small Business — The Comeback Trail
Unlike other economic contractions, the Great Recession of 2007 has been particularly brutal on small businesses.
Between 2006 and 2010, the number of annual openings of private sector establishments dropped from 650,000 stores to 500,000 (Bureau of Labor Statistics). The recession has also wiped out property values by 20 to 50 percent. More small business owners are having problems with labor cost/quality, health insurance, and regulations. Customers are hording cash and savings, unable or unwilling to spend. Banks have throttled loans.
When small business owners are polled on their number one problem, the most frequent answer is “poor sales,” increasing by 3.5 times since the beginning of the recession. Research-ers at Nielsen Media find retail sales are generally down by 10 percent and luxury services down by 30 percent or more.
What may “poor sales” equate to in the car wash industry? My guesstimate is an annual loss of $2.2 billion (see table, below). This is based on the assumption that the recession would cause a 20 percent reduction in aggregate demand.
So, what’s next?
If economists are right, the worst of the recession is over and a recovery is in the making. If so, this would be the time for participants in the car wash industry to begin planning a comeback.
This means changing thinking caps and making the transition from “hunker down” mode to preparing and executing a plan that would allow a car wash business to come out of the recession much better than before.
Planning a return to better times would begin with an assessment of the key factors affecting the car wash business: employment and consumer confidence.
During the initial years of the recovery and comeback, frugality will continue to be the buying culture with people spending mostly on necessities. As the recovery grows, consumer confidence will increase and people will spend more on inexpensive discretionary things like car washing and, eventually, big-ticket items like new cars.
On the other hand, economists say the outlook is for slower labor force growth than in previous decades, an aging population and labor force, and a continuing shift of employment to service-producing industries. Analysts expect the largest number of new jobs in the United States will be created for low-paid, low-skill workers such as retail salespeople, food preparers and servers, cashiers, and janitors. A similar pattern is expected in health care and other service-related industries.
Participants in the car wash industry should play to these patterns and may need to change the variables of their marketing mix to do so. For example, experience has shown the more successful businesses coming out of past recessions are those that maintained or launched the right strategy and tactics during it.
The fastest growing segment of the car wash industry during the recession was the express exterior wash. In certain markets, brand loyalty has given way in the presence of these facilities.
Arguably, this doesn’t occur because of the $3 or $4 price alone, but rather because of hand-finish qualities, much faster speed, and much shorter waiting lines. Capping it off by giving away the vacuum is something else most washes don’t match.
Similarly, folks owning express washes may want to consider the pent-up demand for products and services they don’t match.
The importance of planning for a comeback now is the lead times of the tasks needed to deliver the plan.
For example, most comeback plans involve benchmarking, best practices review, formulating strategy, forecasting future volumes, and determining what upgrades are needed. Then, for each potential upgrade, a benefit/cost analysis and determination of lead times should be established.
This entire process, including implementation, may take six months to a year or more to complete.
Since the economic recovery is likely to be as uneven as the effects of the recession were, a comeback plan and the right time to pull the trigger needs to be company-specific.