Time to Talk Recession? 3 Communications Considerations for the Potential Downturn
While no one knows for sure if a recession is coming, speculation is high, and for good reason.
Elevated inflation, the Federal Reserve’s actions to contain it, continued supply chain constraints, and Russia’s invasion of Ukraine are among the many factors fueling concerns of a global economic slowdown, in turn causing the CBOE Volatility Index (VIX) to rise. The VIX, often referred to as Wall Street’s fear gauge, has risen from approximately 17 to above 30 so far this year.
Other indicators point to trouble, too. Since 1948, every time inflation has exceeded 4% and unemployment has dropped below 5% simultaneously, the U.S. economy has gone into a recession within two years.1
We currently sit well beyond these thresholds: as of April 2022, annual U.S. inflation was 8.3% while the unemployment rate was 3.6%. If history is any clue, we can expect a recession within the next 24 months.
Get Ahead by Answering 3 Critical Questions
With earnings season wrapping up and the Fed continuing to work to bring inflation under control through rising interest rates, the next few months will be telling. Whether or not a recession is imminent, companies need to be thinking about how to assuage investor concerns and communicate their ability to weather whatever type of storm is ahead. If we do tip into recessionary territory, those companies that have their recession talk track ready to go will be ahead of the game. So, it’s worth spending the time now to think through the following three questions.
1. How did your company fare during the last recession?
You, your company, and your investors, have likely been through this before—and not in the too distant past. A nod to that fact is a good idea, especially if your company performed relatively well during the last recession or recovered quickly in the aftermath.
Highlight any of the factors that helped your business last time around. These will differ for companies depending on industry. For example, some of your company’s end markets may be insulated from the impacts of a recession. For retail companies, in particular, high-income individuals’ spending habits do not necessarily change noticeably during such economic downturns.
You might want to highlight sales durability, discount or promotional offerings, cost optimization strategies, or the company’s plans to gain market share by remaining flat while others shrink.
What if my company was not around during the last recession? Given the burst of IPOs over the past several years, a recession talk track may be new for the Company. The key is to point to the attributes that make your company resilient, which will help to instill confidence that the organization can succeed in any type of environment.
2. How has the company strengthened its foundation?
Regardless of how well positioned a company is for a crisis, there are always lessons to be learned from the past and, subsequently, improvements to be made. Discuss any specific steps management has taken since the last recession and how those efforts will help insulate your organization for the potential economic downturn ahead. Examples may include:
- Fortifying the balance sheet by reducing debt, increasing availability on the line of credit, and managing working capital
- Improving diversification including end markets and geography and reducing customer concentration
- Expanding product lines to mitigate cyclicality, reach more customers, and grow the top line
- Diversifying the supply chain to reduce input costs and minimize risk
- Increasing operational efficiencies including productivity improvements, process automation, and headcount efficiency
- Creating greater flexibility through more nimble operations, omnichannel sales and marketing, and the ability to flex production based on demand
- Enlarging competitive moat through technology and innovation
Sharing these efforts, and any other strategic initiatives management may have enacted since the last recession, will help build a strong case regarding your readiness for an impending recession.
3. What is different today from last time?
No two recessions are exactly alike. The last downturn came with a tremendous housing crisis that likely will not be repeated in the next recession. So, it’s important to avoid speaking about the impending situation as if it will be a mirror image.
Instead, emphasize how your organization’s inherent strengths and any recent strategic changes help to uniquely position the company for current circumstances. You may want to address how changes such as the shift in consumer shopping patterns, the globalization of the supply chain or the rising cost of energy impact your business. Include key points about policies in place to mitigate the risks from these issues while maximizing the opportunities.
It’s also worth touching on the strength of the consumer balance sheet. Generally speaking, U.S. consumers are better prepared for the impending downturn than they were for the last one due to less debt burden, elevated wages, and higher rates of savings overall. This fact alone can help the economy muscle through the challenging times ahead.
Build investor confidence for the future.
Whether the economy goes into a full fledge recession now or sometime down the road, the effects of an economic downturn will surely remain a key source of concern from investors and analysts well into next quarter’s earnings season. Your answers to the above questions can help you prepare and hone a compelling talk track with proof points and strategic messaging that will alleviate key concerns and help investors better understand your company’s ability to perform in less-than-ideal circumstances. If you’d like some additional help with crafting or revising your investor narrative, give us a call. We can evaluate your strategic investor relations program within the context of our current economy and help you make the updates needed now.
1 Summers, L. H. (2022, April 5). Opinion: My inflation warnings have spurred questions. Here are my answers. The Washington Post. NY Times Opinion
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