It’s Deja Vu All Over Again Back

For many middle market companies, the previous 3 months (and, most likely, the next 12 months minimally) will have been like stepping backwards in time to the Great Recession of 2008. For a few others, it will be like stepping back to the very beginning days of their companies when owners were just starting out, uncertain of sufficient future sales, uncertain of their management ability to overcome market challenges, and uncertain whether sufficient consumer/customer demand even existed for their products/services. The drop in revenue has been this severe.

Current unemployment levels (over 40 million people unemployed in June) haven’t been this high since the Great Depression of 1933. The weakening of consumer/customer/client buying power due to their own losses of revenues/incomes and their inability to buy due to the closures of many companies due to stay-at-home restrictions has squashed demand. Middle market companies will be “stepping back into a future” where future demand is uncertain and its calendarized, rate of returning back to pre-virus levels, is almost impossible to forecast. Companies will be lucky to have executive leadership that was either “there at the beginning” and/or led the decision-making process through the 2008 Recession.

This contraction of demand, like conditions brought about by the crash of 2008, will force companies to operate with as small a footprint as possible. Management must reduce operations to fewer and smaller locations. Companies are rapidly lowering their operating cost structures, restructuring their capital financing towards greater liquidity while seeking lower debt servicing levels and deleveraging, and strategizing over how to grow sales/revenues in an unprecedented, uncertain future. In the midst of reducing their workforces to match the loss of revenues, the remaining employees and executives will be wearing multiple, functional hats, reminiscent of when owners wore the hats of CEO, bookkeeper, head salesperson, and production line supervisor. We might also see an increased incidence of family members working in the family business; family members need the income and the companies need less expensive labor. There’ll be way fewer owner and executive perks as well.

These economic times require hand-to-hand combat…which is hard to win when you’re weighed down with a lot of pork fat (not to mention, lenders also, tend not to appreciate a lot of fat!). Even after all of the fat has been trimmed, there’s still the fundamental problem of what will feel like insufficient demand. It’s not that consumers and companies don’t want to buy; they can’t buy. Either they are prevented from going out due to stay-at-home orders, or their store/vendor is closed because it’s a non-essential business, or they just don’t have the income with which to make discretionary purchases. Even when most virus-related restrictions are lifted, many people will continue to be unemployed (many jobs simply aren’t coming back), many companies will have gone out of business and those of both that remain (consumers and companies) will be struggling to make ends meet. The virus and our response to it have thrown a wet blanket on consumption, essentially suppressing it. The economy could easily be entering into a prolonged period of secular stagnation.

Secular stagnation is an economic term from the Great Depression. It refers to a market economy experiencing a long-term weakness in demand, resulting in low growth. In today’s version, both consumers and companies choose to save (horde cash/increase liquidity because of the uncertain future created by the virus) rather than spend or invest resulting in a chronic (secular or long-term) lack of demand for goods and services. Should the virus and our response to it continue into the first half of 2021, and should the country still wrestle with significantly high unemployment and Congress fails to provide a jobs stimulus, we could find ourselves in a period of prolonged, suppressed demand.

If we do, then what?

We’ll see a fight for the spend dollar, i.e. the consumer dollar, the purchasing department dollar, the services bought dollar. Households and companies will be holding onto as much liquidity as possible. “Nice to Have” vs “Need to Have” debates will be occurring everywhere; think capital investments, expensive marketing campaigns, or costly R&D programs; think skinny inventories, wage reductions, more hourly labor and less salaried employees, demand for rental relief, and continued use of remote labor. These spend dollars will become very precious and they will be metered out very carefully. They will go to the best deals, the lowest prices, the best value-added-bundled-offering of goods or services.

“This economy will have different winners and losers by virtue of the comfort levels of consumers – high comfort is ecommerce and stores that do it right for your safety. Low comfort is travel, airlines, etc. How do you capitalize on getting a bigger share of the consumer dollar in that light?”¹

Everyone on the buy-side will become price sensitive and everyone on the sell-side will become value-providers in an effort to close a sale. The market’s response to secular stagnation will be deflation, the lowering of prices. You can already see in the market, various efforts to lower the perceived cost-of-purchase for goods and services. Companies are trying to entice the desperately sought spend dollar by:

  • Offering free home delivery;
  • Delaying first payments for 6 months;
  • Strengthening their online promotions;
  • Creating frequent-buyer price discounts;
  • Promoting tell/bring-a-friend discounts;
  • Increase early payment terms discounts; and
  • Breaking up services into a la carte

If companies and businesses have already right-sized because of the virus, then they’re in a position to be profitable at lower prices. If they haven’t, then we can expect further unemployment or the permanent loss of jobs that were initially thought to have been temporary cuts.

Companies will also seek to improve margins off of existing pricing through a variety of techniques. Not a bad strategy if demand holds up at current pricing. What variety of techniques, you ask?

  • Downsizing products;
  • Changing to less expensive packaging and ingredients;
  • Having fewer components in a pre-priced, bundled offering; and
  • Reducing the degree of customization for goods and services (i.e. “You can have any color Model T you want as long as it’s ” – Henry Ford).

So, how to navigate all of the above? It involves the basic blocking and tackling we’re all familiar with:

  1. Trim the fat now, don’t wait for things to get
  2. When crafting your go-forward business plan, think both in terms of less overall revenue and less margin per unit or
  3. Accept that you’re in a fight (vs. substitutes and alternatives) for your customer/consumer/client’s spend dollar; adjust the marketing 4-P’s Just because there’s a price war, doesn’t mean that you can’t still be chosen.
  4. Challenge your teams to come up with more efficient (faster, less costly, involving fewer resources) processes.
  5. Engage landlords in positive discussions about a win-win future where the company returns to thriving in its current location and the landlord is made whole on any temporary
  6. Renegotiate your debt structure with an eye toward increasing liquidity and reducing service

Entrepreneurs are often recognized for their perseverance through funding shortfalls, market uncertainty, and other forms of adversity. Certainly, Covid-19 represents a significant challenge for middle market companies. What is Deja “New” versus both the Great Depression and the Great Recession are the procedures, manpower requirements and the costs emanating from the importance of keeping the workspace safe from Covid-19.² These factors often combine to prevent companies from operating at breakeven capacity, to slow ordinarily speedy and efficient processes, and to create the unexpected, unbudgeted new expense of significant quantities of disinfecting/cleaning agents and PPE (face coverings, gloves, and thermometer guns). The forced reliance on video and phone conferencing has the potential to slow the response time to requests for information and the timely completion of tasks. The listener/doer isn’t able to see the urgency in your facial expression, or hear the insistence in your voice, or feel your presence as you stand nearby. (Nah, none of us do these things, right?!) But, these challenges can be dealt with.

Company leaders might find themselves needing to take steps backwards in order to eventually take steps forward. The pill can be easier to swallow if it can be approached from the paradigm of, “We’ve been here before, either when we first started this company, or in 2008. We got this! It sucks but it’s just Déjà Vu all over again.”


  1. John Sandberg, CEO – Martin Svensson Home,
  2. Richard Reinis, Esq – Thompson Coburn, LLP,