Cycles…and the New “Normal”

Thursday, September 10, 2015

One of the "talents" that I’ve been told I am fairly good at, is being able to look into the future and "read the tea leaves" as to what lies ahead. I’m not talking about it this newsletter, but new products, technology, systems, etc. that are going to hit down the road—well, they are just awesome. So the future, over-all, is bright and we're going through some of the most amazing transformations that I've seen in my lifetime.

Here's one rather sobering transformation that I feel we have to pay much more attention to. "Living" through the Great Recession, and surviving, there's a term I've heard pretty often...that what we're now experiencing is called “The New Normal." Banking relationships are totally different. Customer’s expectations have changed... “Hey, we expect more ‘Service’ from you guys but give it to us ‘Cheaper.’” Products change ever faster…etc. But here's the one that concerns me the most. Used to be, you get in an "Up" know, new construction fires up, and continues to get better. Sometimes for 7-8 years (or more) you ride the "Wave” and the "Down" cycles were kind of short (1-3 years) and pretty predictable. So you were able to ride that period out. Some belt tightening, some (necessary) lay-offs. Conserve cash, tighten up bank relationships, reinforce relationships with vendors, etc. So, what am I talking about? It's all changed, as I've said. Because when we look around, at the "good" sales and actively that we have now, I'm viewing it as much more short-lived “Wave.”

Just look around the world for a moment. China was the “darling” of the world, now they're falling...pretty hard actually. Greece is broke, and so are a number of other countries...Have to include the U.S.A. in that list! Iran is going to have nuclear capability, and in the meantime, they keep chanting "Death to America." Everything I'm saying doesn’t necessarily have any political connotation--just the reality of where the world is at. “Turmoil as far as the eye can see”!! So I feel that portends shorter cycles because nothing seems for certain. Period.

So, what is the message in all this? I feel we have to keep "our powder dry" more than ever. Cash will remain "King." Don't allow yourself to get down so low, that a couple of really slow months could kill you. Capital projects? Can't just kill them being afraid of tomorrow, but spend more time analyzing what good they'll be able to do for you in a shorter cycle. Maybe a way to say it is be "cautiously aggressive"...Very Cautious! And your Team. Surround yourself with folks that are cognizant that everything could change tomorrow: “Movers and Shakers” that are willing to work just as hard on the survivable side as they are on the good side.

One last thing…When we hit that next "Down Cycle," there may well be--even so--great opportunities that present themselves. An example is Kimal getting into the "Pocket Frame" manufacturing near the tail end of the Recession. It’s turned out to be a terrific success for us.

It is just the best time in the world to consider Cycles, and make sure that we are living in "The New Normal"...and not in the past. With good planning we can adapt to Cycles that are shorter but part of "normal" life.

Al E. Bavry, CEO, Kimal Lumber & Hardware 9/10/2015

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