Page 114 - Accelerating out of the Great Recession

DEFENSE FIRST

ernment exhortations. What is clear is that the Great Recession
is forcing companies to face a new reality in terms of their cash
conservation. In the face of this tightening, the norms of the
past decade—characterized by holding low levels of cash and
high levels of debt—will not return soon.

Renegotiate with Suppliers
The financial crisis shifted most major economies from a track of
low inflation to lower or even negative inflation. So it is a good
time for companies to take a second look at their supplier arrange-
ments and renegotiate in order to benefit from falling prices.
The retailer F.W. Woolworth Company did precisely this
during the Great Depression. It had long maintained a wide
roster of suppliers—which allowed it to search for the best deals
and regularly renegotiate for better terms—but in 1931, it
reduced contract periods from 6 months to 60 days. With prices
falling owing to deflation, these shorter contract periods
allowed Woolworth to negotiate price reductions even more
frequently. As a result of this and other measures, Woolworth
was able to decrease its costs by an amount greater than the
drop in revenues it experienced between 1929 and 1933, and
thereby protect its bottom line.

Postpone Spending until You Have Secured the Core
As we will explain in Chapter 5, the current climate may be a
good opportunity to invest in new initiatives, but not if the cash
position of a company is unstable. At times, it may be necessary
to slow down or postpone spending outright in order to stabi-
lize cash positions. This is what General Motors was forced to
do during the Great Depression’s double dip in 1937. In 1935,
GM responded to the upturn in auto sales by using its strong

■ 93 ■