The Recession Conundrum of 2023
- December 2, 2022
- Posted by: Gary Young
- Category: Asia Sourcing
It is not news that we are suffering through what might turn out to be a bad recession. I know… Is there any such thing as a good recession? Well, there are soft landing recession which gives manufacturers and retailers room to plan both advertising and inventory appropriately where orders not halted, but adjusted to expectations for the bounce. This can be exciting as there is a possibility of picking up market share by being first to respond to the market. That takes vision, planning and a little luck.
But a bad recession is different. You cannot see the bottom. You can not see the bounce to plan your timing; you are out of inventory and cash has been depleted. Sometimes, that is just the way it goes. You will have to call on your lines of credit and cut, cut, cut expenses, while waiting for signals that a recovery is forthcoming. Once that does happen, everything is a mad rush. Very stressful, but at least you have a direction and a plan. You have probably been through this before.
But this time it’s different, How so? … Well in recessions past you trim the fat and get lean. The problem is that you already did that during the COVID shutdowns. There is no more fat to cut. So how do you survive this unique situation? We have even asking the same question.
Most of our clients are cutting inventories by 35% in 2023, anticipating a long recession. These decisions are baked in. There is nothing we can do about it. So how does my company (Avela) plan to make up for this loss in 2023? Well the obvious answer for us is to invest in marketing and find new clients to fill in that gap. It’s not a perfect solution because reduced orders are the same amount of work for us as the larger orders. It means we do the same amount of work for less money. And adding on top of that, if we take on more clients, we have more work to do. It’s the Recession Conundrum of 2023.
I am sure it is much the same for you. There is no easy way out. So, I visiting Vietnam and Cambodia (can’t travel to China yet) to ask our factories what they can do for us to relieve some of this pressure. And as you might guess, they are having the same concerns and facing the same issues. But I did walk away with some hope. For Asia factories, stability is just as important to them as price. If we can find a way to offer Asian companies’ stability and an order plan for 2023-2024 where they can factor in on orders spanning 2 years, they in turn would offer better pricing, knowing orders can be planned for.
In addition, many factories can offer warehousing larger orders with a plan to ship and bill on a schedule that makes sense for our best guesses when things turn around. Of course, there would be schedules and minimums, but this allows you to accelerate shipping volumes once a bounce is in site and as inventories diminish on the Asia side, orders can be planed again as things are getting back to normal.
And there is always a possibility or sharing containers within the Avela family of clients if the synergies are there. There is a bit of luck going into this strategy, but it can always be top of mind, to make adjustment as orders are filled.
I guess my bottom line is that there has to be some kind of a plan in order to survived the Recession Conundrum of 2023. We all need breathing room and planning for a post-recession world. And this is possible when you have boots on the ground in Asia and the US. And it can be a reality when you cultivate great factory relationships, which btw is what we do at Avela.
