Greg Kitzmiller11.01.01
Analyzing The Impact Of September 11
Change reverberates throughout economy, industry.
By Greg Kitzmiller
Life is different now. When we last published, most of us barely had time to react to the incidents of September 11. Now we have had a chance to reflect and think of the changes that will result. Those events affected our people, our industry and our strategy. There are two primary areas of affect on business—the economy and consumer confidence. In reality, though, there is one driver and that is consumer confidence. If the government provides stimulus and we see continuing boosts like interest-free loans for autos, then it only depends on whether consumers push ahead to make purchases or not.
Immediately after September 11 people were shocked, sad, angry and certainly not thinking about life-as-usual. With thousands dead and missing, the tenor on the East Coast seemed to be a long gasp followed by a long pause. The rest of the nation sat glued to television news. Many reported the same reaction—for those of us who only received the news via TV and the Internet, there seemed to be almost denial. We’d lived through one World Trade Center bombing and while that dealt a blow, the death toll was no more than many earthquakes or hurricanes. After truly taking it all in we started accepting the reality. We saw images of make-shift stretchers being made and then remaining unused. There was a call for donation of blood and then potential donors were turned away as the Red Cross quickly filled its need.
Now life has drastically changed—even for those of us not directly connected to those missing. We saw skies with no airplanes—for the first time in many of our lives. When planes did start flying again, we felt uneasy when one seemed to be flying low. Travel came to a near standstill. I stayed in a hotel on September 13 and it was not even charging for “no shows” due to the tremendous number of cancellations. Some businesspeople drove to locations they would have flown to before. Many had a long pause from business travel. All of this created conservatism. Many young people have not lived through economic downturn.
Consumer confidence fell in September, according to The Conference Board. The Consumer Confidence Index was down in August to 114 and declined further in September to 97.6. (Conference Board Consumer Research Center news release, Sept. 25, 2001). The Conference Board also conducts a survey of more than 125 chief executives from many industries and reports 70% of executivesfeel business conditions are worse than six months ago, up from 64% in the last survey. Additionally, 20% expect economic conditions to worsen. An FCB Insight survey published in the Wall Street Journal showed the percentage of people spending less than a year ago by category was 43% in electronics stores, 35% for fast food and 33% in casual restaurants (WSJ Oct. 10, 2001 page B6).
Of course there were signs that the U.S. economy was in trouble before September 11. The Standard and Poor’s 500 had slid substantially since the start of summer. Real GDP percent change vs. a year ago was lower in the second quarter of 2001 and was the lowest recorded in over three years, according to the U.S. Department of Commerce. Now, with consumer confidence in question as of September 11, the economy looks even more fragile. Clearly the airline business is a mess. When SwissAir stops flying—along with all of the problems with US. carriers—the problems are obvious. Some travel is down, though rebounding. The insurance industry has taken a big hit as a result of the destruction.
Yet there is good news. Both the airline and insurance industries are being aided directly by the U.S. government. The Wall Street Journal reports Broadway show attendance and national auto sales have rebounded (WSJ Oct 15, 2001, page 1). And many firms have taken actions—albeit unpleasant—that they should have taken earlier, i.e., cutting unneeded employees or otherwise taking measures to shore up their financials. It has also created urgency in the government.
So what should we in business do? First it seems trust is a big theme. There are some reports that consumers want nostalgia and old friends (Wall Street Journal, Oct. 10, 2001, B6 “Focus groups favor nostalgic messages”). These consumers are reaching for something they can trust. While Northern Ireland, Israel and Colombia have been rocked by terrorism for a long time, this is the first taste most Americans have had of such uncertainty. It seems they may rely on brands that are old friends. Therefore, brand names consumers have known should stand a better chance of short-term acceptance. As a result, Centrum, GNC or Tropicana may be in better shape to press forward than firms starting a new brand.This also suggests that consumers may be a bit wary of totally new ingredients and perhaps more skeptical of GMOs. This may not be the right time to launch a new ingredient of Oriental phytochemicals.
Second, now may be an opportunity to take advantage of lower marketing costs. Firms need to be prudent and examine budgets carefully. Yet if their sales are not in a terrible slump, they may be far better off continuing marketing efforts and negotiating for improved rates. Take a note from the travel industry. Luxury hotels may be seeing improvement because they have substantially reduced rates. If media have seen cutbacks, now is the time to take advantage of any media deals or other marketing deals you can get. The budget you already had planned may go further.
Third, you may want to consider security for your firm. Firms want to know where executives are and may not want all of their people working in one place. This may add cost for some firms and these costs, as well as heightened security costs, need to be considered. Now is the time to consider how to keep a disaster from affecting your firm.
Fourth, a recession, even if temporary, is a time to put costs under a magnifying glass. Realize that there are many businesses started in the last ten years that have never ridden out tough times. Consider that many top executives today were only young middle managers during the last major business downturn. These firms and people need to learn the culture of economic survival. Many CEOs and top managers will need to think through where they really must spend their money. But don’t overdo. I once worked in a firm that stopped paying for some business newspapers for top staff. Saving $1000 in a multimillion dollar enterprise, while cutting off the executive incentive to stay well informed, might not have been the wisest move. Yet looking at true productivity by area may be appropriate. There are supplement brands with a large number of items on the market when in reality only a handful make money. Discontinuing money losers may indeed be prudent.
Finally, tough times never last. This one may indeed be short. According to Dr. Lawrence Davidson of the Indiana University Kelley School of Business, “Many forecasters believe that the U.S. is now in a recession that should last through the end of the year. The recovery phase could begin as early as January 2002 or as late as June. Factored into this forecast is another round of interest rate cuts by the Fed, a sensible expansionary fiscal policy and stable oil prices. Should any of these assumptions prove to be incorrect, this would change the timing and amplitude of the present cycle.” We’ve heard this recession referred to as a “V” – with a sharp downturn followed by a sharp upswing. Businesses must be ready for both!NW