Lego essay

Submitted By DomHeyland
Words: 965
Pages: 4

Typically you might expect that an economic downturn is bad for all businesses as generally consumers have less money to spend and usually demand might fall. Lego defied this at the height of the last recession by returning a 69% rise in profits in 2009, a time when other toy businesses were struggling badly. Part of what allowed Lego to thrive at this time was the nature of the product, because it is long lasting and children can use it in a multitude of ways, parents were attracted to it at a time when they needed toys that would have a longer life span for their children. In a recession the threat of substitute products – which tend to be more expensive – and the power of buyers is lessened and this meant that lego have been able to take advantage of the changing economic climate. The same is true of Domino’s pizza, who also found the recession to be a time of great growth and increased profits. As customers had less disposable income, rather than spending weekends out doing leisure activities like going to bars and restaurants, many consumers stayed at home, watching TV and this was a huge boost to the home delivery restaurant business. Take away restaurants are normally able to take advantage of an economic downturn as they are counter cyclical businesses, meaning that they do well at times when the rest of the economy is not doing well. Both of these examples seem to suggest that for established businesses the economic downturn was an opportunity and not a threat.
However it was not only established businesses that thrived in the recession. 4 Rivers smokehouse was a BBQ restaurant started in 2009 which now employs over 500 people at multiple locations. The owners recognised that the economic conditions provided an opportunity to start a unique business providing they were able to differentiate through exceptional service that would convince customers to use them and become loyal at a time when money was tight. They were able to achieve this and once the economy picked up they were able to achieve rapid expansion based on their good reputation.  This example illustrates that being established does not matter when attempting to be successful in an economic downturn.
Though some have enjoyed success, many well-known and established businesses suffered during the recession. Comet was one of the UKs biggest electrical chains, but when suppliers refused to extend credit to the company any more, they found themselves in administration. As a buyer could not be found the business closed and the government ended up footing a £20 million bill, to honour redundancy payments. There was also a loss of £25 million pounds in tax that the company owned. The issues comet found were largely around costs, as a large retailer they had significant fixed costs for their stores and staff salaries and online competitors were making price competition difficult to contend with. In the run up to Christmas 2012 the lack of available credit meant it was ultimately a cash flow issue that finished the company off. Another well-established high street name to suffer was Blockbuster who went into administration at the start of 2012. They had around 300 stores close down at the height of the recession. Though it would appear these examples suggest the economic downturn is a massive threat, it is important to look more closely. Blockbuster in particular suffered because of where their products sat in the product life cycle (decline). The movie and game market has shifted with DVD and computers games becoming marginalised by alternative products. The shift to online content was the real problem for Blockbuster who, like Comet were at a huge cost disadvantage against their online competitors and unable to alter their product portfolio. Once the recession meant customers had less money to spend, the…