Recession-Proof Businesses: Why do they survive?

In late 1990, amid a recession that would go on to last 5 quarters, UK discount retailer Poundland opened its doors for the first time. Defying the odds Poundland grew at a rapid pace. Much later in 2009, during the great recession, Poundland saw record sales.

Currently, the world has been flirting with yet another recession that would seriously impact the global economy. However, as we’ll explore, some businesses may shrug their shoulders at this news. Additionally, others may welcome it.

Today we’ll look at past recessions to see what business seemed to do best and why, to help us conclude what industries could be recession-proof.

What is a recession?

According to the Office for National Statistics (ONS), a commonly used definition of a recession is two consecutive quarters of falling Gross Domestic Product (GDP) – or ‘negative growth’ – in Gross Domestic Product (GDP).

Although recessions come around for different reasons, they can all be problematic for business owners.

Recessions can deepen if negative economic factors reinforce each other, creating a prolonged downturn.

This type of downward cycle occurs when factors such as falling demand, rising unemployment, and reduced business investment begin to reinforce each other.

Rising unemployment, and declining consumer and business spending causes further unemployment which causes declining consumer spending, which causes declining business spending.

This cycle can be difficult to break and often requires significant intervention from governments, central banks, and other economic entities.

Recession-proof industries

Before we dive into it, a quick caveat: Just because your business may fall into a ‘recession-proof’ industry, you are not automatically safe from failure. Businesses in recession-proof industries still need to be competitive across all aspects of operating, just like any other firm.

If your business is struggling and needs support, read more about how we can help here.

Now, let’s get into it. In no particular order, here’s our list of recession-proof industries.

Healthcare

Two separate studies, one from McKinsey and another from The Office of National Statics both found the healthcare industry grew during recent recessions.

Some studies have found that healthcare demand and revenues tend to remain stable or grow during recessions, reflecting the essential nature of these services.

These studies go on to explain how healthcare is a recession-proof industry due to its necessity. It doesn’t matter what the economic climate is people simply need healthcare.

For those working in the healthcare sector, further studies have shown that employment grows during a recession where it’s seen to shrink in every other industry.

Consumer staples

Next up is consumer staples, which do just slightly worse than healthcare during recessions, according to McKinsey.

Yet again, the reason for consumer staples’ survivability is their necessity. The basics of living, such as food and drink,  will rarely lose demand, typically seeing smaller declines in performance than more discretionary sectors.

Among businesses that sell consumer staples, you won’t be surprised to hear that discount stores do the best during recessions.

As people cut spending during difficult economic times, they look for the best value for money, which is usually found in stores such as Poundland, Aldi, Lidl and Walmart (for Americans).

Utilities

Utilities such as water, sewage, electricity, gas, waste, recycling, TV, internet, security, and phone services don’t seem to take much of a hit when times are hard either.

utilities have historically been more resilient than many sectors, although performance can still be affected depending on regulation and energy market conditions.

This follows the trend of necessity, you need running water, you need electricity, and you need the internet. Utilities are often subject to regulation and, in some cases, government support or intervention, which can provide additional stability.

Alcoholic beverages

Making a somewhat surprising appearance, alcoholic beverages are sometimes considered relatively resilient due to consistent consumer demand. So why are they on this list? One article by Forbes suggests that due to their affordability, alcoholic beverages become the new small luxury.

During unstable economic periods, what would once be a fancy meal out with friends and family becomes a home meal with a few cheaper alcoholic drinks.

During economic downturns, consumer behaviour can shift towards smaller, more affordable treats, including alcohol consumed at home rather than in hospitality settings. During difficult economic periods, some people might be persuaded to turn to alcohol when money gets tight, and the situation gets stressful.

Although using alternative healthy stress relievers would go so much further.

Small affordable luxuries

The industry of small affordable luxuries generally covers things that make you feel good that are relatively cheap. Even during hard times, people still want to treat themselves, so they tend to scale down their spending on luxuries rather than cutting it out completely.

Because people switch to these cheap luxuries, such as lipstick, nail polish, and alcohol, they are generally regarded as recession-proof.

The lipstick index

The ability of some industries to endure economic downturns, such as lipstick and nail polish, has been suggested as an actual measure of the economy.

The famous lipstick index, a phrase coined by billionaire Leonard Lauder, was offered up as an economic indicator due to some evidence suggesting more people buy these small luxuries during difficult economic periods.

Ultimately this theory has been disregarded due to lipstick sales increasing during prosperous economic times too, meaning it cannot be reliably used as an economic indicator.

In recent times people refer to the lipstick index as the nail polish index due to similar trends that have been observed with other low-cost discretionary products, although evidence is mixed.

Wrapping up

So why are these industries recession-proof? Necessity. If people can’t live without it, as bad as an economic downturn is, it won’t get in the way of people’s needs.

So, if your product or service meets essential needs, demand is likely to be more resilient—but no business is completely insulated from a downturn. Cost control, pricing, and operational efficiency remain critical.

But that doesn’t explain the small luxuries, as much as we might like them, lipstick, nail polish and alcohol aren’t a necessity. As we’ve covered, when people can no longer afford the more extravagant luxuries, they turn to the cheaper ones.