Industries that boom in a recession

With some economists saying there could be a potential recession on the cards, we decided to look at what industries thrive when most fall on harder times.

Times are a bit rough at the moment in the New Zealand economy.

We’ve seen dairy prices drop, and as a result of that, a huge consumer confidence drop.

Business confidence in the economy has also plummeted to its lowest level since the peak of the global financial crisis in 2008.

ANZ’s Bank Business Outlook survey showed 29 percent of businesses were pessimistic about the outlook for the economy.

Director of economics and strategy at First NZ Capital, Chris Green, told Radio New Zealand on August 19 there was a 25 to 30 percent chance of a recession.

“A couple of months ago I would've put the probability around the five to 10 percent mark and what we've seen recently - you know, the sharp decline in dairy prices, the reduction in the pay out from Fonterra, and the sharp fall in business and consumer confidence,” Green said.

"But I think more recently, one of the developments that we're thinking, maybe, is what we're seeing within the Asian region and the potential fall out from a slower China in to the Asian countries that we trade with as well."

So with those gloomy sentiments in mind, we decided to look for the silver lining and examine five types of businesses that thrive in a recession.

1. Discount retailers

Retailers worldwide such as Walmart can suffer in good times, as people feel more comfortable buying higher quality goods.

However, the reverse applies for the not-so-good times – discount retailers excel by peeling back their stock to core products and using economies of scale to provide cheaper goods to consumers.

In 2009, Walmart reported a 5.1 percent increase in profits while most other large retailers were struggling.

This was more than double Wall Street’s expectations of 2.4 percent.

2. Luxury retailers

According to some reports, retailers at the other end of the spectrum also thrive.

Newsweek reports the total number of worldwide billionaires jumped 20 percent in 2008.

Additionally, sales for luxury goods slumped in some countries but got a boost in others.

In the US, ultra-luxury shoes and diamond-encrusted handbags slumped in early 2009, but companies such as Hermes made up for it with Chinese sales.

This may have been because the recession also resulted in more millionaires in China.

According to the Huffington post, China’s number of millionaires grew by 15 percent in 2011.

As well as this, as early as 2011, luxe companies like Gucci were bouncing back.

Gucci reported a 23 percent increase in sales, while less expensive retailers were still feeling the effects of the recession.

3. Candy, contraceptives and cosmetics

Little pick me ups seem to be what people turn to in a recession.

Sweet treats, such as lollies and chocolate, continuously perform well.

Lolly sales went through the roof in the US during the great recession.

This was also the case in the more recent recession in 2008, as Cadbury’s profits went up 30 percent. Nestle also saw a 10.9 percent growth.

Lipstick sales in a recession rise as women look for small luxuries to pamper themselves.

In the depression era, there was a 25 percent increase in cosmetics sales.

More recently, make up brand L'Oreal posted year-over-year sales growth of 5.3 percent in 2008. 

Back home, Statistics New Zealand figures found that the retail sales of chemists (who sell a lot of make up) increased in 2008 after New Zealand entered the Global Financial Crisis.

These sales were also strong right through to 2010.

The trend became known as the lipstick indicator, as make up is a cheaper compromise for women who want to splash out but don’t have the money.

 Activities in the bedroom also provide a (mostly free) way to have fun during a recession, as shown by sales.

During the first two months of 2009, contraceptive sales grew 10 percent.

4. Vices

There has always been the notion that sin wins when the economy loses.

Tobacco stocks are a smart buy in any recession, as cigarettes sell well.

So does a glass of wine.

Investopedia reports that the businesses that fare the best when it comes to vices are gas stations or convenience stores, as these small indulgences can be bought on the go.

However, businesses such as gambling become an extravagance and generally decline during recessions.

Casinos usually thrive when the economy is doing great and everyone feels lucky.

5. Business as usual

Businesses such as healthcare companies, taxi service companies, funeral homes, waste disposal companies and pharmaceuticals all plod on in a recession.

This is because people will always get sick, get taxed and die without respite, even if there is a financial crisis going on.

Sometimes the dullest of businesses are the ones that perform the most consistently – or offer good returns.

From 2008 to 2012, the healthcare industry in the US grew at 4.2 percent annually.

The repo companies also garner profits when a recession hits.

In 2008, a total of 1.67 million vehicles were repossessed in the US, a 12 percent increase from the year before.

Other weird products that tend to perform well in a recession, according to US News:

Laundry detergent, Monster energy drinks, salad dressing, pressure cookers, Tupperware and universal remotes.

Other weird ways to measure a recession:

  • The men’s underwear indicator – A US Federal Reserve chairman noticed that when the economy was booming, mens’ underwear sales boomed but dropped when it wasn’t.
     
  • The hemline indicator – This theory was formed in the 1920s during the Great Depression. It says women’s skirts rise and fall with the economy, so when things are going pear shaped, women’s hemlines drop to the floor.
     
  • The toothbrush effect – Toothbrush maker Oral-B found increased sales of electric toothbrushes meant bad things were happening in the economy. We’re  not what logic can be gained out of this, but one theory is that people invest in more expensive, feature-packed toothbrushes to avoid trips to the dentist.
     
  • The hot waitress and waiter indicator – The concept behind this one is, the more attractive the people in service roles, the closer the economy is to caving. During more upbeat times in the economy, the theory says more attractive people can use their looks to get better paying jobs. 

This article was originally published on The Register.