Essay: Understanding Recessions: Causes and Coping Strategies

What are recessions and why is it important to study them
This Dissertation addresses the problem of the ‘business cycle’. The business cycle generally consists of 6 stages:
Expansion: marked by an increase in incomes, production, employments and sales. Money supply is steady and investments are booming.
Peak: This is when the economy has reached its maximum level of growth. This is characterised by high prices, and the stoppage in the growth of economic indicators.
Recession: A period of contraction. It is characterised by an increase in unemployment, low levels of production, drop in sales due to decline in demand and stagnation or decline in income
Depression: The characteristics of recession worsen, consumers and businesses find it hard to secure credit, trade is reduced, and bankruptcies start to increase. Consumer confidence and investment levels also drop
Trough: opposite to the peek, it marks the end of the depression, leading an economy into the next step
Recovery: the economy starts to turn around. Prices are low facilitating an increase in demand, employment and production start to increase, trust builds in the economy and more credit is available
Then the cycle begins to repeat itself. For each of the stages, brands have to employ different strategies in order to sustain themselves.
So why do Economies go into recessions?
There is little regularity as to why previous recessions have occurred. No two recessions are the same and nor are the coping mechanisms the same. That being said given bellow are some causes of recessions:
Loss of Confidence in the Economy: According to Forbes’ journalist, Tim Worstall, the economy is based on how people feel about the economy. If people feel like the economy will do well, they will spend more, which intern will make the economy do well. On the other hand of they force a drop in the economy (even if there isn’t physically one) they will begin to reduce economic activities which will thus negatively impact the economy
High interest rates: which intern limit liquidity so people have less money to spend and thus have to reduce their economic activities
Post War slowdowns: As most of the money is used in warfare, there is little money invested into the economy
A recession in 2020 ?
Economists have been predicting a global rescission in 2020 since before the Coronavirus pandemic. According to the IMF, a global recession occur when the world growth (normally between 3.5 to 4 percent) drops to less than 2.5 percent. The growth in 2019 had already fallen to 2.9 percent (IMF). Given below are some more resigns why the world was going into recession before COVID2019:
Bond market and the inverted yield curve: Probably one of the biggest indicators of a recession. In a healthy market, long-term bonds carry a higher interest rate than short-term bonds. When short-term bonds deliver a higher yield, it’s a called an inversion of the yield curve. The bond market phenomenon is historically a trusty signal of an eventual recession: It has preceded the seven last recessions. Amid falling interest rates in the broader U.S. bond market, the yield on the benchmark 10 year treasury note has fallen below the 2-year yield several times since Aug. 14 2019. (CNBC 2019)
Corporate profits and the S&P500: Earnings growth estimates have come down drastically this year. Last December, analysts estimated S&P 500 earnings growth for the year would be around 7.6%, according to FactSet. That number is now around 2.3%. Goldmansachs and Citigroup strategists reduced 2019 and 2020 earning estimates for the S&P 500, citing a sluggish economy, trade war threats and potential currency devaluations (CNBC2019)
Individual countries that were on the brick of recession according to Forbes: Hong Kong, Italy, Germany, China (ironically all of which have been heavily impacted by the virus)
How COVID 2019 is going to add to the global recession:
As the coronavirus continues to spread around the world, governments have implemented public health measures, such as social distancing, to physically disrupt the contagion. Yet, doing so has severed the flow of goods and people, stalled economies, and is in the process of delivering a global recession. Economic contagion is now spreading as fast as the disease itself. The virus has pretty much implemented a freaze in all economic activities. According to IMF, the global recession caused by the COVID2019 pandemic may be worse that the one triggered by the global financial crises of 2008. The fastest and best way to deal with this recession according to IMF Managing Director Kristalina Georgieva is for the wold to work in unison and solidarity in order to increase fiscal spending. This is not the case at the moment, investors have already removed $83bn from emerging markets since the start of the crisis, the largest capital outflow ever recorded.
Nouriel Roubini, a professor at NYU’s Stern School of Business, a Senior Economist for International Affairs in the White House during the Clinton Administration, has also worked for the IMF, the US Federal Reserve, and the World Bank. He predicts that global stimulus packages are coming to an end, inflation is coming, trade disputes will create a drag on economies and that interest rates are now on an upward trajectory.
With the help of a chart, Mickinsey and Co. aims to explain the impact of COVID2019:
Accoding to Mckinsey and co., the most likely scenarios to take place are between A1 to A4 highlighted in black. Here they predict that it will be a U-Shaped curve (less severe to a V-shaped curve) and that economies will eventually revive.
How have luxury Brands reacted in the past to market recessions
During the life of a luxury brand, the overall economy is bound to go through the ups and downs of a business cycle. During recession, the first thing consumers are bound to do is cut out “unnecessary expenditure” which tends to be the category that luxury goods belong in. Therefore how do luxury brands sustain them selves during market recessions and how can they do this wile still remaining at a niche, and not loosing their existing consumer base. The importance of this is lies in the technique, how do luxury brands adapt their strategies while still remaining at a niche. Though there is a lot of research on the marketing strategy, there isn’t enough research done on the overall strategy. And very minimal research that is only catered towards how luxury brands must adapt, as luxury brands are only a small subset of the overall market. 
The business cycles are economic forces and all economic forces have an effect on firms, wether it be positive or negative. And thus if a firm is able to read the forces of economics correctly and adapt its strategy’s accordingly, it is likely to minimise its losses and maximise its profits.
How will the Luxury industry be impacted by the COVID2019 Recession?
According to the Boston Consulting group, coronavirus could wipe out between €30 billion to €40 billion in sales, dragging the industry down to levels not seen since 2015.
The immediate impact on luxury has resulted in factories that produced scarves and perfume to switch to manufacturing face masks and hand sanitisers, and many luxury groups have made monetary donations to hospitals and other not-for-profit organisations.
Here are some ways in which luxury could change:
Wholesale Dwarfism: even prior to the emergence of COVID2019 luxury brands were showing trends of vertical integration with the emergence of ecomerce. So luxury brands that have not yet managed to integrate to this may face challenges and may be forced to resort to discounts which may ruin the luxury positioning of those brands
Shows without live audiences: fashion shows and trade shows have been essential ways in which luxury showcased their products to the world. With social distancing they will have to come up with other ways to share their magic.
Ownership to experience to ownership: Millenials were showing trends of preferring to ‘experience’ luxury instead of ‘owning’ it. I.e they preferred splurging on a hotel instead of a pair of boots, but this too is changing due to social distancing.
Consumers may be driven to buy luxury for “conscientious value” rather than “conspicuous value”: consumers will begin to prefer to buy sustainable brands, those that reflect their own values.
Travel bans:Chinese consumers represent 35% of the global personal luxury goods market. Most chinese consumers prefer to buy their luxury products in Europe, both of which are not likely to happen in the near future, this may change the chinese outlook on luxury.
Research Question:
“A predictive analysis of how luxury brands will be impacted by the Market recession that is to come post the COVID19 lockdown, and what strategies can be used to gain competitive advantage during the same.” 

Research objectives:
How luxury brands need to adapt their strategies in the phase of the “new luxury” as a result of the coronavirus: As explained in the background, CONVID2019 will alter the luxury market forever. Timeless brands that have been using the same strategies forever will now have to explore other methods of survival in the post corona world. The consumers phycology has changed and so brands to need to change their messages to allaying with the consumer psychology.
What are areas of competitive advantage in the luxury industry right now: The best part about a market changing is that it leads to grey spots in a very saturated markets. these grey areas need to be spotted quickly and may in fact be the “in” upcoming luxury brands were looking for.
How have luxury brands faired in the past to market recessions, what were the key learnings there: history always repletes itself. Very often to make predictions about the future, one needs to look at the past. So a 10 year financial analyses of luxury brands across industries will be done in order to understand how they have faired against market recessions
Research methods 
Part I:
The first part of the paper is a Historical study of luxury brands. It consists mostly of Secondary data which is acquired from CapitalIQ. The study orchestrates an in dept analysts of how firms in the luxury industries have faired as opposed to those that were non luxury.

Companies selected:
Luxury Fashion: Christian Dior, Hermès International Société en commandite, Kering SA, and the Richmont group
Non luxury Fashion: H&M, Diramonde and Newlook
Luxury Cars: Lamborghini, Maasarati and Rolls Royce
Non luxury Cars: Volvo, Volkswagen and Renault
Luxury Hotels: Les Hôtels Baverez S.A and Mandarin Oriental International Limited
Non luxury hotels: Accor and Tui AG
Luxury Watches and Jewellery and Accesories: Buccellati, Rolex watch company, Salvatore Ferragamo
Non Luxury Watches and Jewellery and Accessories: Pandora, The swatch group and Online brands nordic

Part II
The second part of the research will mostly be done through primary research. Mainly in the form of interviews and questionnaires.
The interview will be done by talking to people who work at the given luxury firms and understand how they are currently dealing with the Business cycle, what issues they foresee in the current methods. Interviews include: Ms. Aashna Sinha (Head of HR at the Richmond group in New York), Mr. Sharad Agarwal (Managing Director of Lamborghini in India) 
The questionnaire on the other hand will be sent to numerous people to identify how individuals are economically impacted by COVID2019.