With prices still rising and a downturn possibly looming, it’s time to take steps to protect your business and bottom line.
In the spring, the International Sleep Products Association published a forecast predicting a decrease of 3.5% in mattress units shipped and a 3% increase in the wholesale dollar value of those shipments for this year — both, at least in part, attributable to inflation.
The U.S. Federal Reserve and central banks around the globe are trying to tame inflation without causing a recession, and mattress manufacturers and suppliers can adopt strategies to protect their own bottom lines.
As we know, inflation refers to the rising prices of goods and services. Within the sleep products industry, this can be reflected in the costs associated with hiring and retaining workers, and sourcing, producing and shipping goods — all of which appear to be factors for the foreseeable future. Dealing with inflation — and possibly a recession —
Coping with inflation
Perhaps surprisingly, although only 48% of respondents in one recent survey by Bloomberg cited rising inflation as the biggest challenge they have faced in the past year, 71% of those small business owners reported inflation has had a negative impact on their business.
Whether they see it as the biggest problem they face or not, a recent Capital One survey found that small business owners had already taken the following actions to help mitigate the impact of inflation:
- 27% built up their cash reserves
- 23% pre-emptively raised prices
- 21% purchased more inventory
Building up cash reserves can be as basic as sweeping extra cash into interest-bearing accounts. Interest rates had been so low for many years that keeping a lot of cash in an interest-bearing checking account wasn’t a smart financial move. That is changing. The Federal Reserve continues to increase its federal funds rates — rates that may rise to as much as 2.1% by the end of 2024. (A reminder: the federal funds rate is the rate at which depository institutions borrow and lend reserves to each other overnight.)
Now might be a good time to stock up and hold more inventory, whether it’s components, supplies or replacement parts. In fact, now would also be a good time to make any large purchases, whether for inventory, property or equipment. After all, prices will likely continue to rise as supply continues to struggle to keep pace with demand, and financing these purchases will, obviously, become more expensive.
Here are a number of other steps bedding makers and suppliers can take to help reduce the effects of today’s inflation including:
- Analyze profit margins. Re-evaluating costs and analyzing profit margins is a good first step to ensuring that increases or decreases in those margins won’t impact quality or service.
- Streamline and automate processes. Restructuring processes can save you money. Don’t forget to assess commonly overlooked areas, such as accounting, payroll and scheduling.
- Renegotiate leases and rental agreements. Property owners and equipment rental businesses are facing the same skyrocketing prices as those in the bedding industry. But weighing those increased prices with losing a good paying tenant or lessee has opened the door for many renegotiations.
- Investing in technology. In these inflationary times, technology can help you get more done with fewer workers. That could mean radio-frequency-identification and barcoding systems for inventory control or artificial intelligence-driven automation. A wide variety of technical upgrades could benefit your company.
- Buy now. As we noted earlier, you may not want to wait for prices to reach their inflationary ceilings. If you have access to capital and bank loans, buy the core materials your business needs to survive. Now may also be a good time to invest in property and equipment — assets which historically keep pace with rising costs in inflationary times.
Bad debt, good debt
Many experts advise that this is the time to free your manufacturing operations from debt rather than taking on more unless absolutely necessary. However, for some, this may be the best time to get access to financing.
Good times or bad, a “rainy day” fund is almost a necessity. Whether an emergency savings fund or a line of credit, planning ahead means having a ready source of cash, if or when it might be needed.
Is a recession looming? While inflation is obviously a concern, consumer worries, a cooling housing market, the ongoing war in Ukraine, and droughts and other natural disasters around the globe may lead the U.S. economy and others into a recession. During a recession, the economy struggles, people lose work, businesses make fewer sales and a country’s overall economic output declines.
Regardless of whether a recession is on the horizon or perhaps already here, “recession proofing” a business can safeguard its survival. If we’re spared a recession, your bottom line will still be in better shape.
Here are some strategies you can employ to weather a recession:
- Make the most of current customers. Now is the time to take care of loyal customers. You don’t want to lose them, and they could bring new customers to your business, either through word-of-mouth or because they see the success you’re having and want to work with you, too. Simply telling customers how much their business is appreciated can reap big dividends.
- Grow your customer base. The importance of increasing your customer base can’t be overemphasized. After all, the unexpected loss of one big customer can impact even the most financially stable business.
- Be more aggressive with marketing. In tough economic times, many businesses make the mistake of cutting their marketing budget or even eliminating it. But lean times are exactly the time when a business needs marketing. Customers are restless and may make changes in their buying habits. Stay top of mind and highlight how you can improve their businesses.
- Incentivize workers. Many bedding companies are still struggling to hire employees to enable them to keep up with orders after pandemic-induced worker shortages. During any economic downturn, employees will have financial problems of their own. That means their first priority will usually be to take care of their families, either by asking for a raise or changing jobs — and maybe going to work for one of your competitors. Losing well-trained, quality workers is something no business can afford. Employees should always be fairly compensated for doing their jobs. When they go above and beyond, however, they should be rewarded through a formal, tied-to-profit, pay-for-performance plan. If you don’t have such a plan, consider developing one — and involving employees in the planning process.
Continuing supply chain issues
Surviving today’s continuing supply chain disruptions means making sure that your operation has reliable suppliers and a steady flow of components, supplies and parts. Keeping a bank of components easily accessible, especially those that are the most in demand, is an easy way to reduce pressure.
Of course, as suppliers along the chain feel pressure, be alert for quality degradation and late deliveries. The answer — whether for spare parts, supplies or components — is to know your suppliers, both new and long-time.
And don’t overlook those skyrocketing freight costs. Finding clever ways to make shipping more efficient and moving manufacturing closer to customers and end consumers can help.
Unfortunately, there is nothing that will make a company 100% inflation-proof. However, understanding the economic climate and implementing some of the strategies outlined here can help your operation survive tough times and, perhaps, even profit during them. •