A parting of the ways

Our business, like every other one, is built on a set of assumptions. These pillars of the market have stood the test of time, and the business cycle. Some are common-sense deductions, others a stronger leap of faith.

And perhaps the strongest, most dearly-held of these is that "we trail the retail sector by 5-6 months", and it's corollary, "we recover 5-6 months after retail recovers".

Please put on your safety goggles, and protect exposed flesh--I'm about to shatter one of those pillars in front of you. Guess what? We DON'T trail retail by 5-6 months anymore, and I'm going to go a step further and say we never did.

There is no doubt that most of the manufacturers that sell the wholesale trade (sales to retailers) have had a pretty good 2010. In fact, their recovery began in earnest last fall. Specifically, my company's sales turned strongly upwards last October, and have been roaring ever since. Most brands that sell to retailers can say pretty much the same thing.

But that has not translated to our business. Not in July or August, when we would have "traditionally" seen the "turn", Not in September, when early adopters were planning for Christmas. Our activity is a little better, don't get me wrong. But our "rebound" is nothing close to that experienced by my counterparts in the wholesale business. Not even close.

Why? I have a theory--we haven't seen a recovery because we built a "pillar" of our market on a false assumption. Retail sales have nothing to do with our business. Nothing. What matters in our market is the level of corporate budgeting for rewards, recognition, gifting, and incentives. And for as long as anyone can remember, that trend has always been one direction--up.

Yeah, there was a slight downturn after 9/11, but it was relatively short-lived. This downturn in our business started in earnest in October 2008, which means we're at the 2-year pole with no serious return in sight. And the reason we have lowered confidence is that corporate budgets were not increased for 2010 after the 2009 cutbacks. The current cycle will tell us whether 2011 will be more like 2010.

Retail sales have little or no impact on what corporate clients to do budgets other than a general sense of "well being" a company's senior managers might have. And since we have been deemed an "expense" instead of an "investment", we may find that the "recovery" will be slow and incremental. Had your expense budgets reinstated to 2008 levels lately? Didn't think so.

So all these years, we have tied our business prospects to something that actually didn't correlate to our channel. 40 years of increasing budgets finally met their maker in 2009 and getting them back to pre-2009 levels will have everything to do with the mood of senior managers in client companies and almost nothing to do with how WalMart is doing.

And this presents us with an even bigger question--what if the budgets DON'T come back?

It seemed so much easier to explain two years ago...


Pete