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Who has been swimming naked…?
March 10th, 2009
As you will read from previous posts, I am determined to hunt out and highlight, wherever possible, the upside of the current downturn.
It was Warren Buffet who made the memorable comment in 2007 ‘When the tide goes out, you learn who’s been swimming naked’. This has been particulartly the case in the US with Maddof (pronounced apparently as ‘made-off’ as in ‘made off with your money’), and more recently Sanford, but I wanted to turn this analogy another way.
Now the economic tide is out, we can see who has been swimming naked. There were no great shocks when Woolies went down – we all knew it had been on the cards for years, and that the business had survived due to the boom years. Just as a below-average employee can survive in a large corporate environment when they should have been fired years before, so too poorly performing businesses seemed to get swept up in the frenzy.
The difference in performance between mediocre and great business in economic boom time is far smaller that you might think; in difficult times this difference can become a chasm. Therefore businesses that offer genuine value to customers will out-perform the rest – and dramatically so. So what differentiates the well dressed swimmers from the embarassed?
Some are well-placed because of the demise of their competition. Take for example Mothercare – a strong International business which is capitalising on the demise of Woolworths and Adams. Trusted brands that have been doing the right thing for a long time are also cleaning up – Pizza Express and McDonalds for example, are benefitting from those customers who believe they offer real value for money.
Niche players are thriving too. You wouldn’t have thought of Whitbread as niche, but they have focussed on 3 core areas and have businesses that are performing well in the current environment – Premier Inn, Costa and Beefeater.