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Merchandise Management Business Cycles (Profit= Revenue-Costs ((There…
Merchandise Management
Business Cycles
SLUMP
is the slow down or contraction phase of the business cycle
Characteristics of an economic slump
Low level of inflation
Unemployment is relatively high
Its an indicator that the economy is heading into a recession
Period of poor performance or inactivity
There is a fall in demand
Fall in consumer confidence
Starting a business in an Economic Slump
Lower unemployment increases your opportunity of finding good staff
Interest rates will make finance cheaper
opportunity as everything is cheaper
government offers more support by offering subsidies to stimulate the economy
less competition
Business conditions in an economic slump
Its difficult for businesses to increase prices without compromising on sales
Investments in business will be low
BOOM
An economic boom is the
expansion
and peak phase of the business cycle
Business conditions in an Economic Boom
Finance is easier to achieve
Inflation rises & there is a rise in tax rates
Decreased rates of unemployment
Over investment can lead into a slump
Starting a Business in an economic Boom
Take all exchange and interest rates into consideration to avoid over investment
Consider the competition
Capitalise on the strong consumer confidence
Be mindful that a slump is the next sage in the business cycle
Characteristics of an Economic Boom
Strong consumer demand
There is an increase in investments, emerging small businesses and an increase in wages
Low unemployment
High consumer confidence
Rising stock market
Rapid increase in consumer prices (inflation)
High level of disposable income
High level of economic growth
High interest rates
An Economic Boom is a good time to start a business, however, retailers must be aware of the increase in competitions as many people are inspired by the strong economy. Retailers must be aware that the next stage of the business cycle is a slump so it is wise to have contingency plans in place and to not overextend finances
RECESSION
is the slowdown, downturn or contraction phase of the business cycle it is characterised by two consecutive quarters of GDP in negative
Characteristics of an Economic Recession
Production facilities become under utilised
Sales & production orders start declining
Rising unemployment
The economy slows down
Falling stock market
Inflation pressure
Business conditions in an economic slump
Employee lay-offs
Cuts to quality of goods & services
Credit impairment
reduced consumer access
Businesses evaluate & eliminate debts
Starting a business in a recession
Less competition
Easier to hire strong workers
Low interest rates = cheaper finance
Downturns give new businesses negotiating power
RECOVERY
is the expansion phase of the business cycle
Characteristics of an Economic Recovery
increased business activity
Low Interest Rates: Business recoveries usually start in a low interest-rate environment. This acts as an incentive for businesses to borrow money
Increased consumers' confidence
There is an increase in productivity due to the increased aggregate demand in the economy
A turn from depression to prosperity
Job Stimulation: Companies resume hiring when they can project future sales with some certainty.
The stock market trends higher
GDP increases
Business Optimism
Starting a Business in an Economic Recovery
There is increase in productivity, due to rise in economy demand
Good time to start a new business as there will be a growth in consumer confidence
This stage involves a lot accepting the change that has occurred in the recession stage - may include going through denial, anger, blame, disappointment followed by true acceptance
Business conditions during an economic recovery
Business recoveries usually start in a low interest-rate environment, low interest rates mean lower interest expenses for both households and businesses, which could mean more spending.
More disposable income for individuals, therefore more free cash flow for businesses usually mean higher demand for products and services
More jobs become available with companies beginning to hire again because they can predict higher sales coming through, potentially reducing unemployment levels
Profit= Revenue-Costs
How much people spend is dependent on disposable income & household income. What are consumer spending & what are they saving?
What are interest rates doing
How is the CPI (consumer price index looking)
The inflation rate is low in Australia >> government manages this by managing interest rates
Factors influencing business include the cost of finance/capitol. Interest rates for business loans, cost of labor (wages & salaries), services such as cleaning and maintenence.
Consumer confidence is a massive influencer of consumer spending. The stock market can be a good indicator of consumer confidence.
There are pros & cons to starting a business in each stage of the cycle
The average length of a business cycle in the Australian economy is 62 months from peak to peak (around 5 years)
A business cycle begins at a peak, drops down through a trough and back up to a peak again