A Recession Case
A recession is a period characterised by falling levels of consumer demand, output, profit and business confidence, little investment, spare capacity and rising levels of unemployment. Profits may be affected by sales and therefore how cyclical demand is. Products that have a demand that is particularly sensitive to income may see a major fall in sales in a recession. Whether the type of industry it operates in is entirely the only thing that affects the amount of profits earned is questionable. There are a number of other factors that determine companies’ profits during a recession.
The first factor is that some firms’ strategies may be designed to be recession proof as they’re products are discounted or sold cheaper compared to the rest of the market.
During a recession companies such as Poundland thrive upon the downturn due their effectiveness of cost cutting. The recession causes demand to fall as consumers are less willing to spend money and prefer to keep it in their pockets due to rising inflation and concerns about the banking system. Poundland were very successful in the 2008 recession and the 200 strong chain unveiled profits up 122% to ÂŁ8m in the year. Their top line profits before interest, tax and other charges climbed 43% from ÂŁ11m to nearly ÂŁ16m. In keeping their prices incredibly low, consumers can buy an array of goods there at very low prices enabling the public to keep their spending to a minimum.
However the majority of businesses are unable to discount their prices to the extent that companies such as Poundland are able to. Companies such as Comet who sell electronics and other household appliances recently went bust after losses of ÂŁ8.9m were recorded. The market is so competitive that they were unable to match price discounts made by other stores such as PC World and this saw consumers slowly beginning to stop purchasing their products.
It would therefore seem that companies’