Growth Markets Centre , PwC’s emerging market growth engine, in its recent interaction with retailers, consumer companies and industry associations in Brazil uncovered that many companies continue to be in a wait and watch mode for economy to turn around. However the progressive companies cannot afford to take that approach. They have to be proactive and make positive changes to deal with the new economic realities they are currently experiencing. This means companies have to be ruthless and detailed in their self-assessment.
In this race for survival, retail and consumer product companies might take different approaches, but still would be heading towards a common goal - to beat the downturn. Some of these measures would include – cost reduction, investment and product portfolio optimization, aligning market priorities to the changing market need and coming up with a value proposition that excites consumers to break the wall which they have built around their wallets; finally, starting the cycle of growth oriented consumption.
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The decision to make further investments becomes tough to argue when consumer spending is on a decline. At times when demand is declining it makes sense to trim costs. However focus solely on cost cutting can cause problems. Pragmatic companies try to find elusive balance between cost cutting and investments to spur growth.
During the 2000 downturn Sony cut its workforce by 11%, R&D expenditures by 12% and capex by 23%. Such cuts helped Sony improve its margins, but growth in its sales tumbled from an average of 11% in the three years before the recession to 1% thereafter and Sony has struggled since then to regain momentum. By contrast, during the same time Staples took a different approach to cost management. It shut down its non-performing facilities and increased workforce to support high end products and services it introduced. As a result, sales doubled and profits were 30% higher than pre-recession