Surviving a Recession as a Professional Christmas Installer
Since the beginning of 2020, the world we knew has been turned upside down. The stability, economic prosperity, and confidence in knowing we have a strong year ahead have suddenly vanished. Many of us are still coming to terms with such a rapid turn of events. We long for the good old days of 2019 when increasing tariffs and tight labor markets were our biggest concerns.
For those of us who run a business, this new reality has us concerned about our businesses’ future. With the country initially being virtually shut down and trillions of dollars lost due to the virus, how can we survive as an industry? On top of that, now that things have opened back up again, we’re finding that the virus has surged once again, leaving us even more surprised and cautious about what the immediate future holds.
In addition to the pandemic, we’re also experiencing nationwide tension--complete with widespread protest and a very polarizing political climate. We wonder: Will people want to spend money on Christmas lights and decorations if we’re facing bleak economic conditions in the near future? Is there any precedence for how the Christmas industry fares during tough economic conditions? And what can we do to improve our business’s chances of surviving or even thriving during these difficult times?
The Christmas Industry and Recessions
Over the past 41 years, our team at Christmas Designers has weathered five recessions. I made my way into this industry 23 years ago and have seen my share of difficult economic times, including the dark days after 9/11 and the Great Recession in 2008.
With each of the recessions, the Christmas industry has done very well, and during some of these downturns, the industry experienced significant growth. The fact is that when times are tough, people are looking for something that can lift their spirits. That’s where the magic of Christmas comes in. When recessions hit and the world feels like it’s falling apart around us, we need to find something that can help bring our spirits back up as human beings.
Christmas brings joy, happiness, and a sense of stability during difficult and tumultuous times. For some people, it’s because of the religious nature of Christmas. For others, it’s because of the comfort found in lighting up and decorating your home for the holidays and creating lasting memories with family and friends. Christmas has a way of filling us with hope and happiness, even during the most difficult times.
This spirit is why, during every recession in the past 40+ years, we’ve seen a big demand for Christmas lighting and décor. People will cut back on many expenses, but they still want to experience the magic of Christmas and load their homes and businesses up with bright and colorful holiday lights and décor.
During a recession, customer groups react differently, and not every recession results in the same buying habits for each of these groups. For example, during most economic downturns, cities tend to still want to light up and decorate. They will either maintain the same holiday decorating program as previous years or even increase it to bring more community spirit.
However, during the 2008 recession, real estate took a hard hit. Cities saw a significant reduction in tax revenue due to defaulted real estate taxes and a high rate of foreclosures. This resulted in many cities cutting back on their holiday budget.
Still, while cities were cutting back, we saw an increase in government organizations spending more on the holidays due to the money they received from the financial stimulus package. This included infrastructure improvements. Christmas lights and decorations fell into the infrastructure improvement category, so many experienced increased spending from that customer group.
During the 2008 recession, we also saw homeowners cutting back on hiring professional Christmas installers. However, businesses were still eager to have lights and decorations put up and were willing to cut back in other areas to still budget in their holiday program.
Pro installers who installed for middle and upper-middle-class residential homes did see a reduction in the number of installs they were doing. However, the installers that were able to adapt and change their business plan quickly were able to survive the recession. In many cases, they actually thrived and saw their business grow. As a whole, the professional Christmas industry saw a moderate amount of growth and expansion from 2008 to 2011.
As I write this, we see the pandemic race around the globe for what appears to be a 2nd wave and, in some areas, even a 3rd wave. It’s unclear what the economic fallout will be, but it’s nearly certain that we’re in the midst of at least a moderate recession. If the virus continues at the current pace, we may see a recession that exceeds what we experienced in 2008.
The big question on every professional Christmas installer’s mind is: How will the industry fare during this recession, and will we have enough business to continue operating? The answer to this question will depend on a few things, including how deep the upcoming recession is, where you live, and your ability to adapt your business to a different business environment.
How Serious Will the Recession Be?
Recessions are a natural part of an economic cycle. On average, every 6 to 8 years, the US goes through a recession. The ups and downs of the economy are expected. The last downturn was in 2008 and 2009, which was the most serious economic downturn since the Great Depression. Since the ending of that recession in June of 2009, the US has seen an economic surge for more than a decade.
Even without the current Covid-19 situation, most economists agreed that the US economy would face a recession within the next 12 to 18 months. Various signs were starting to show that indicated our decade of strong growth was nearly at an end. Of course, no one could have predicted the pandemic’s impact on the entire world.
As of August of 2020, it’s becoming clear that this current recession will range anywhere from moderate to severe. Initially, there was talk that this could even be a depression similar to the economic impact we experienced in the 1930s. While there is no agreed-upon definition of a depression, we typically look for a decline in GDP exceeding 10% or a recession that lasts 2 years or more.
Fortunately, our economic foundation is much stronger than it was in the 1930s. Our currently low-interest rates and aggressive stimulus packages appear to be helping the country avoid a potential economic collapse. Real estate remains strong in most US and Canada areas, and the government bailouts have pumped trillions of dollars back into the economy. Most financial experts believe that these factors will play a significant role in helping us avoid anything as serious as what we faced during the Great Depression.
Different Geographic Areas Will Weather a Recession Differently
In 2008, I was living in North Texas, but I was also spending a lot of time on business in South Florida. I saw firsthand how the two areas were affected very differently by the recession. Florida was hit hard. Tourism and real estate were a significant part of Florida’s economy, and the state had experienced tremendous real estate growth during the previous 10 years.
On the other hand, Texas had only seen moderate real estate growth, had a low cost of living compared to wages, and had a well-rounded economy. These 3 things helped put the state into a better position to handle a severe recession.
However, while Texas did very well in the last recession, this next one may not be as easy. They’ve experienced more significant growth in the real estate market during the last 6 years, and oil (a market which is having trouble) has once again become a significant economic factor for the state. The overall cost of living in major cities throughout Texas has increased significantly to add additional economic challenges. It takes more of an individual’s paycheck to support oneself in Texas than it did back in 2008. All of this could mean that the state may not be as lucky in the upcoming recession.
While the examples above only outline two states, everywhere will have their own set of strengths and weaknesses during a recession. With some research, you’ll determine how your area of the country may fare in a recession.
However, even if you’re in an area that is hard hit by a recession, there are still opportunities for your business. You can weather the storm and keep your business running until the economy improves.
Is Your Business Prepared for a Recession?
The impact a recession will have on your business depends on what type of customers make up the bulk of your installations. Many of the larger pro installation companies have learned over the years to diversify their client mix as much as possible. Having all your eggs in one basket can be a crippling blow to your business if that customer group is hit hard by tough economic times. And the fact is, some customer groups will not fare as well as others during difficult times.
Often, a pro installer finds a particular customer niche does very well for them, so they focus heavily on that customer group. For newer pro installers, this may be middle and upper-middle-class residential homes. More experienced pro installers may find that shopping centers or government entities are the sweet spots they’ve been looking for, and they focus all of their energy on those customer groups. Unfortunately, this narrow focus means that businesses may take a bigger hit when times turn tough.
For newcomers to the industry, being diversified is virtually impossible. It takes time and an excellent reputation to enter into contracts with large commercial accounts. It also takes time to diversify the business adequately. These goals may not be easy to achieve if you’re still in your first few years in the industry.
So now that we find ourselves facing a recession, what can be done if your business doesn’t have a diversified customer base? And even if you have a diversified base, you may still see an impact on your business from one or more of your customer groups. So what can be done to minimize the negative impact and make sure you still have a customer base to support your business?
Cut Cost and Preserve Cash
Hopefully, you’ve kept your business lean and mean during strong economic times so it’s ready to weather any upcoming hardships. But the fact is, most business owners tend to increase overhead and take on extra expenses during good economic times.
While some of this is essential to maintaining your business, other cost increases may have been done in anticipation of continued economic growth and projected sales revenue increases. You may have added additional equipment, expanded your employee count or rented extra storage space larger than you currently need.
Now is the time to review all your expenses and see if there are any areas where you can cut back. Is that extra warehouse space you’re paying for monthly sitting only 1/3 full? Do you need that extra bucket truck that you picked up at the auction last month? Do you need to hire back your seasonal crew as early as you generally do?
Depending on your business’s size, there may be a lot of areas where you can cut back. Chances are none of them will be appealing and most will require some hassle. Still, now is the time to cut out any expenses that are not essential to your business.
However, you must be careful not to cut back to the point that it undermines your ability to operate your business for this upcoming season. Some cuts that you’d like to do may not be possible.
Additionally, take some time to review your payroll. There’s generally some excess payroll that has been lurking on your books. This is especially true if your business has been operating for a number of years. However, don’t cut too excessively unless you’re finding your business is in real peril. Cutting back on your team too aggressively can have severe consequences on the viability of your business. With a careful review, you may find some duties can be consolidated, allowing for a reduction in overall payroll, while still positioning yourself for substantial growth once the economy recovers.
Don’t Stop Marketing Your Business
I’ve seen it happen far too often: When things get tight, and cutbacks are necessary, the marketing budget is the first to go. Depending on how long your business has been operating and how competitive an environment you’re working in, your marketing budget may be as high as 15% of your revenue. If your business is new, you’re probably spending a higher percentage of your income on marketing. Suppose you’ve been operating for a long time and have a well-established business with a solid reputation and enjoy a high rate of referrals. In that case, your marketing budget will be significantly lower.
Cutting back on marketing to save money during tough economic times is like removing your life jacket after falling out of a boat. This is when you need marketing the most. Pulling back, or even worse, eliminating marketing spending, is a sure way to destroy your business during difficult times.
During a recession, your customers’ buying habits will be different, the most effective type of marketing will change, and how much money potential customers are willing to spend on the services you provide will probably be reduced. All this should be considered to ensure your marketing stays on target and is directed to the right audience.
Perhaps middle-class homeowners have been a staple for your business for several years, and you always get a great response targeting them on social media and with door hangers. However, during a recession, this is a customer group that pulls back significantly. Would this marketing be better utilized if you move it over to high-income earners? Higher-income earners, those earning more than $200k a year, generally weather recessions better and are less likely to reduce Christmas lighting and decorating services.
Evaluating your marketing should be an ongoing effort. During a recession, it’s even more important to look at everything you’re doing to drive customers to your business and make sure you’re taking into account current economic conditions and making appropriate adjustments to your marketing plan.
Improved Labor Market During a Recession
In this industry, when the economy is secure, and unemployment is low, business owners face serious employee challenges. When jobs are easy to come by, those of us that are hiring seasonal workers are left searching.
However, everything changes when the economy hits a recession, and unemployment goes up. Suddenly you no longer have to hire seasonal workers with no experience. The most productive years we’ve had are typically during tougher economic times when many potential employees are eagerly looking for work. These people are hardworking and happy to have a job, and thus, productivity shoots up substantially.
From our own experience, people hiring in the current climate should expect a labor efficiency improvement between 10% and 20%. This can result in being able to do more jobs, or if it is a flat year, it can allow you to reduce the number of installers you employ. That savings can be significant since labor is more than likely the second biggest expense you incur each year (with only material purchases probably surpassing your labor expenses).
Take a Good Look at Your Inventory
Material costs make up a big chunk of your expenses. Depending on the type of work you’re doing, the chances are good that your product purchases are your most significant expense category. Thus, you should carefully evaluate this area of spending.
Start by reviewing your on-hand inventory. Depending on your business model and your business’s age, the amount of inventory on hand can vary significantly. Suppose you mostly offer lights and décor on a rental basis. In that case, your inventory on hand will be substantially higher than a business that sells its products directly to the customer. But even for companies that choose to sell, rather than rent their lights and decorations, the chances are good that you have some extra inventory in your warehouse that can be tapped into. The longer you’ve been in business, the more of this excess product you probably have.
If you’re renting your lights, ask yourself the following: Are you currently aging out your light sets after 4 seasons of use? Can this be pushed an extra year? Using light sets that are old and failing can be costly, but if you’ve been buying high quality LED light sets, chances are good that you might be able to push them one more season by installing them on your later install jobs as well as on job sites that are close to your base of operation. That way, if there are outages, it’s easy to get to the job site quickly and without significant transportation labor.
How about those old rusted displays with bad lights sitting in the corner of your warehouse? What about the 5-year-old garland that has non-working lights? Can these older products be refurbished to add more life to them? Possibly strip the lights off the garland and use it as unlit for projects where there is no power available. For rusted displays with bad lights, consider sanding them down, repainting, and adding new lights.
If you typically sell products to your customers rather than rent lights and displays, you more than likely have excess new inventory in your warehouse. Go through this inventory and see what can be sold to your customers. Perhaps you have some product that can be used as an added value item. For example, if you’re sitting on some 48” wreaths, you could offer them free when someone signs up for a new multi-year contract. This product now becomes a valuable marketing tool.
It's also a good idea to check with your suppliers to see if they have any excess inventory that they are looking to carry out. We typically have $750,000 or more of inventory that we consider slow-moving or overstocked in any given year. Often, we’ll feature this product in loss leader ads as the season heats up. Additionally, when a pro installer reaches out to us to see if there are any hot deals on closeout products, they’re often able to snag some great deals.
A key to taking advantage of great deals is to be flexible in what you’re willing to accept and be creative in how you’ll use the product on your job sites. It’s unlikely you’ll find 12” C9 cord, or a 70 light, warm white conical at a blowout price. Instead, you’ll be offered light sets with different spacing or light line in brown instead of green. Perhaps you’ll find white vampire plugs instead of green or black. Still, with some creativity, you can utilize these closeout products and save your business some substantial money on product purchases.
However, avoid buying a lot of products just because they’re on sale. Make sure you have a plan on how you’ll utilize what you’re purchasing. Saving 50% on 48” wreaths with green lights may sound like a great deal, but are you going to use wreaths with green lights?
Evaluate Your Suppliers
During a recession, it’s more important than ever to make sure you’re buying products from a supplier that can fulfill your supply needs and will be there regardless of how tough the recession gets. Supplier stability is vital when looking at your product supply sources.
In the last few years, the number of Christmas suppliers has increased significantly. Many of them are undercutting the established pro vendors and are operating out of small storage units or their homes. They have limited financial resources to weather a tough economic cycle. Unfortunately, if you’re counting on these suppliers to keep products flowing into your business during the busy season, you may find yourself suddenly without materials.
Previously, we’ve seen some smaller suppliers look to cut product quality during challenging economic times to save money. They begin using lower-cost factories or quietly eliminate their product warranties.
During a recession, it’s more important than ever to be set up with suppliers that have been around for at least 20 years and have weathered difficult times in the past. It’s also a benefit to stick with suppliers that are well rounded in the products they offer. Your focus should be running your business and not sourcing your product needs between half a dozen different suppliers.
Avoid the Temptation to Cut Prices
When a Christmas installation business owner finds themselves in their first recession, their initial reaction is often to lower the prices they’re charging their customers. They assume that since everyone is cutting back and becoming more price-conscious, the best way to continue selling jobs is to lower their prices to add extra incentive for customers to sign up for another year of installation services. However, cutting prices can be a slippery slope.
Anyone that has spent time with me in this business knows that I frequently talk about price integrity. Years ago, the industry had so many fly-by-night individuals that would be here one season and then gone the next. They’d come in and offer pricing that was half of what anyone else was offering, and they’d butcher the job, upset the customer, and then disappear (often without even taking the lights and décor down).
Doing quality work and running a legitimate business is not cheap. You cannot install perimeter lighting for $2.50 a foot and sell pro-quality LED mini lights for $10 a set and expect to cover your expenses. Paying employees and covering equipment cost, storage space, insurance, and materials adds up. Regardless of how much you love this business, you’re not going to do it for free. At the end of the season, you’re expecting a nice profit to be leftover for yourself.
Pricing integrity means that all of us in the industry work together to make sure prices are being maintained at a level that allows for fair pricing for our installation customers and allows for adequate profit. When pricing wars start, and installation charges drop, no one in the industry wins. A few people will grab more work, but they will either be breaking even or squeezing out a minimum profit.
Christmas installing is a lot of work, especially if you’re running a top-notch operation. If you can’t get the prices you need to turn an adequate profit, it’s best to walk away from the job. Don’t shortchange yourself out just to make a sale.
Still, you can offer a 5% or 10% discount to push for a multi-year contract or achieve an earlier install date when your crews are not as busy. However, avoid the temptation to lower your prices by more than 10% and possibly 15% in extreme situations. Beyond that, you’re going to be cutting heavy into profitability, and that’s when pricing integrity erodes substantially and hurts the entire industry.
Once you push your prices down, your competitors will more than likely follow suit to compete against your lower pricing. No one wins when prices are significantly cut to maintain your business volume.
Consider Consulting Services to Supplement Your Income
If you’re new to this business and haven’t reached the point of having a diversified customer base, you may find a recession very frightening. After all, you just got your business off the ground, and you’ve only been focusing on smaller ticket residential installs up to this point. Unfortunately, this is the customer group that will probably pull back the most during a recession. So what can you do?
With the season quickly approaching and your portfolio of jobs limited, chances are not good that you can suddenly jump into high-end residential or big-ticket commercial accounts. Instead of attempting such a significant business change, it’s best to focus on the customer group you’re currently working with. This is where consulting services come in.
Suppose your core customer group is average middle-class families and even some modest upper-middle-class customers. In that case, you may find a lot of them opting not to hire a professional Christmas installer. They’ll decide to do the work themselves. However, just because they don’t want to pay $1000 to have you light up their home, doesn’t mean they may not be willing to pay $150 to get an hour of consulting and educational help to do it themselves.
In an hour, you can demonstrate how to wrap a tree, light up some hedges, and manage their power setup. Perhaps they want pointers on installing perimeter lighting. You can offer this as a 30-minute add-on. So, for another $75, you go over perimeter lighting techniques. You may find they want to handle the lower lighting areas in some cases, but they still want to pay you to do the more difficult upper perimeter work.
Knock out 3 or 4 of these consultations in a day, and you’ll be able to maintain a moderate-income stream while also staying in contact with your customer base. The income won’t be as substantial as what your average installation income is. Still, you’re also not dealing with paying crews, covering the material cost, and handling all the unexpected expenses associated with installation work.
There may be a concern that if you teach your customers professional lighting and decorating techniques, you might permanently lose them as a customer. However, you’ll often find that they will be coming back to you for full installation services when the economy turns around.
Most homeowners find that even if they know how to light like a professional, they still rather have someone do it for them. Their results are never as good as what you are doing, and while they may be able to do an adequate job for one season, more than likely, they’ll be ready to bring you back when the economy turns around.
This Will Pass
There’s one thing every economic downturn in history has in common: Each one of them eventually ends, often sooner than you think. When you’re living in tough economic times, they seem to last forever. However, this is not the case.
It’s essential to keep a level head, pay attention to every detail of your business, and make smart decisions. Base your decisions on facts and spend adequate time thinking things through. Rash and emotional choices are a sure way to cripple your business during difficult times.
Not every business will survive a recession. However, organized, well-run operations that spend time properly planning and making necessary adjustments will make it through even the most severe economic downturns. When the dust settles, we’ve always found that after a recession, we can enjoy a more open business field with less competition.
Companies that undercut everyone on price and did not establish a strong foundation are no longer around. Business is all about the survival of the fittest, and your goal as a business owner is to be lean, mean, and in top shape throughout this recession.