5 industries likely to benefit in the double dip recession

Business

Unless you have been stranded on a desert island for the past seven days, you will have heard that the UK is back in recession for the second time. This means that the UK is experiencing its first ‘double-dip’ recession since the 1970’s. A ‘recession’ is defined as a slowdown of the economy i.e. GDP un-expectantly shrank by 0.2% between January and March.

The implications are a drop in household income, business profits and employment while bankruptcies rise, all of which we are unfortunately, already familiar with. Despite this, it may surprise you to learn that there are some industries which actually flourish during a recession because they capitalise upon changing market trends and consumer needs and provide products or services to accommodate this.

We have identified five industries that have benefitted from the recession so far.

Discount Retail

Firstly, discount retail thrives during a recession. People continue to need and want to buy clothes even when times are hard; therefore, companies like Primark and TK Max traditionally do well out of a recession. This is because consumers, who might usually shop in more expensive outlets, look to cut costs and therefore shop at bargain stores. Primark experienced a 10% increase in profits in 2009 thanks to customers ’trading down.’ This trend had continued into 2012 as it was announced that half-year revenues experienced a 15% rise from 2011.

Pharmaceuticals and Consumer Goods

Pharmaceuticals and consumer goods continue to be successful during a recession as medicine etc. is an absolute necessity, regardless of affordability. Proctor and Gamble (PG), the world largest consumer-products company, has reported annual revenue growth of 8.2% over the last five years. Furthermore, during this five-year period, PG has grown its dividend by an average of 11% year on year.

Budget Supermarkets

People always need to eat, regardless of their financial situation. Therefore, food manufacturing, which includes meat preparation, dairy products, farming, bakeries, confectionary products, food delivery, etc., continues to be in demand.

There has been a rise in the popularity of budget supermarket stores Aldi and Lidl as these stores cater for families on a lower income with smaller budgets. Sales growth for Aldi is reported to be 27.9%, in April 2012 which continues the growth trend of 20%-plus since July 2011. Lidl has also enjoyed a similar pattern of growth and according to the latest period under review, revenues have increased by 11.1% in the period to April 2012.

Movies

The movie industry is largely recession proof. The general trend for leisure time is that more expensive activities like holidays and restaurant meals are the first things that a family will cut back on during a recession and these are replaced with less expensive trips to the cinema. For example family-friendly movies like “Shrek the Third,” “Wall-E” and “Up” have grossed nearly a billion dollars in box office revenue in 2010 and 2011 compared to the $250 million earned by adult marketed films like “American Gangster,” “The Curious Case of Benjamin Button” and “Public Enemies”.

This illustrates that families want to entertain their children outside of their home and therefore choose to enjoy a cinema trip together.

Payday loans

There are always businesses poised to plug the gaps when the landscape of an industry changes. This is exactly what has happened in the case of the payday loan industry as the global recession has forced banks and other lenders to rethink their lending strategy.

The consequences of this are that they are more reluctant to lend money to an individual or small business. In addition to this, the recession has fuelled the need for borrowing as the public are forced to take pay freezes, pay cuts and even redundancies and the cost of living is rising as consumer goods, fuel and utility bills increase. In other words, people simply cannot make their wages last until the following payday especially in the event that an unexpected curveball like a broken down car needs to be financed.

In response to this, payday lenders have created an industry which supplies short term loans to consumers without running credit checks. They offer small amounts between £50 and £1000 and charge an average APR of 1737%. However there are no regulations in place around these loans, which means that consumers can default on the loans as many times as they like and even take out as many payday loans as they like. This can unfortunately, lead to pretty serious debt.

However, there is such a demand for payday loan services during the recession, in the UK alone, as 44% of people struggle to make their wage last until next payday without financial assistance. Four years into the nation’s economic crisis, annual revenues for publicly-traded payday loan companies have risen to their highest level on record as from 2007 to 2010 their combined revenues have increased 2.6%, or some $30 Million in annual revenues.

The news this week that the UK has entered its first double dip recession since the 1970s is not welcomed by most people as unfortunately, we are all too aware of the implications on jobs, prices of consumer goods and generally the ability to survive as an individual or business. However, the aforementioned industries discount retail, movies, budget supermarkets, payday loans and pharmaceutical and consumer goods may actually welcome this news.

This is because changes in lifestyle mean that people demand different goods and services to manage their lives and therefore, favour inexpensive cinema visits as ways to spend family leisure time. Consumer goods and food products are necessities therefore people will have to make these purchases despite their financial situation. Payday loans are ultimately a product that has been developed to fill a gap in the market left by banks and building societies for shorter term loans.

 

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