The Southwestern Company Corporate Blog

This is of course a topic on everyone’s mind. In December of 2008, I was in the Board of Directors meeting of the Direct Selling Association, which is comprised of the most important companies in our industry. I was representing the Southwestern Company and our view of the current economic climate. One of the topics was how the economy is affecting people; it was really interesting that the consensus was the most important factor of the economy is not the economy — it is people’s ATTITUDE toward the economy. These days, there is a constant drumbeat of bad news, and much of that is for good reason: many sectors of the economy are struggling. But the news media (as is normal) does not report the things that are going WELL nearly as much as what is going poorly.

Many commentators stress the fact this is the “worst downturn since the Great Depression.” Some say it may get there again. There are several reasons why the current recession will not turn into another depression like the 1930’s. Economic and banking systems around the world were reformed as a result of those events precisely so that kind of depression can be avoided.

During the Great Depression, the stock market fell a total of 90% (we are currently down a maximum of 40% from the highs) Banks had no insurance for depositors, which meant when people made “runs” on banks, there were not enough reserves to give them their money, nor insurance, and a panic began. Banks today have stringent reserve requirements, and recently the Congress INCREASED the amount of depositors’ insurance by 150% (up to $250,000 per depositor per bank).

In fact, during the early 1930’s, the Federal Reserve contracted the money supply, even as the economy fell. In contrast, the current Fed has increased the money supply dramatically.

Tax increases were enacted throughout the early years of the Great Depression, with the prevailing wisdom being that governmental debt was a bad thing, so let’s increase tax revenues. This served very well to kick the man who was down. The new administration has said it will not act to rescind the most recent round of tax cuts (at least not in the short term), despite earlier statements in the campaign.

Import tariffs were raised in the early 1930’s, then retaliated against by our trading partners. Today, the largest industrialized nations are working in concert to deal with the issues, and although tariffs still exist, countries are aware they are not as effective in the long run as proper competitive trade.

In Europe, many governments have responded even more vigorously than our own, in open conversation with each other and with the U.S. Europe in the 1930’s, on the other hand, was in a severe time of recession, and hyper-inflation, which caused the economic disaster which helped lead to the rise of fascism in Germany and in Italy. Europe today is structured so that will not happen again, and the most powerful economies are allies working together on the economy, not potential mortal enemies. And as worrisome as Vladimir Putin is, would we want to trade him for Josef Stalin?

As you know, Southwestern Company dealers sold books all through the Great Depression. I had the privilege of speaking on many occasions to Mr. Fred Landers (for whom our building and the Freddies were named) and Dortch Oldham, eventual co-owner of the company, about their experiences selling then. Example: unemployment hit 25 – 30% around the country when they were selling books. Mr. Landers told me their attitude in those days was that meant 70 to 75% of families WERE employed, and that’s who they went to see. The maximum projections for this recession are 8 to 9 percent unemployment. There is no question that when a person is one of those without a job, times can be very hard – but our task is to work around that, and find the families who are in good shape economically.

In downturns, people do not buy as many luxury items, nor do they take those expensive vacations: they stay home, and they focus on their families. This works very well for us. Education becomes a higher priority, and people view it as a necessity and not as a luxury. Southwestern’s products are not in the “luxury goods” category, which is suffereing — the suggested retail price of our products is accessible to virtually every family. I saw this my first summer selling books – it was 1974, soon after the first Arab oil embargo. The price of gas doubled in less than six months, and everyone was in a panic. My student manager advised me to concentrate on working as hard as I could and don’t worry about what I couldn’t control, and things went great.

The most recent recession similar in magnitude to this one was in 1982. Not only was unemployment high, but interest rates were out of control – the prime rate was above 15% (compared to less than 2% now). Home mortgage rates were 18%! (Now they are 5.5% and with legislation, may drop to 4.5%). Southwestern’s per-person average production had been dropping, and it was tempting to blame the economy.

However, through the leadership of past Southwestern president Jerry Heffel and the sales management team, we looked at the facts: our statistics regarding work effort and activity were falling. We went back to the basics. Starting in the bottom of that recession, we began to encourage dealers to increase their key work stats, like calls and demonstrations — and unit productivity began to climb. That continued over the next decade: as we continued to increase in demos, the units sold increased, too – that’s the key to it all. We focused on increasing the work stats, and the sales results followed.

I read an interview with a taxi driver in New York City last year, when gas prices were going through the roof. He was asked how he copes with it. He shrugged, and said, “I drive a longer a shift.” There is no question people have to work harder, but that is what entrepreneurial people do best. They don’t look for handouts, nor bailouts. They look for opportunity, and are willing to work hard to take advantage of it.

For student managers building teams to sell our products this summer, the economy can also be a boon to recruiting. Competing internships are fewer and farther between, if not completely absent from the campus scene as corporations cut back. Simultaneously, the loss of tax revenues and endowment income for both public and private universities puts upward pressure on tuition, creating a situation of increased need for opportunities to make a significant income in the summer.

In addition, many conversations are happening in homes around the country in which parents are breaking the news to their previously ‘entitled’ children that things have changed, and they are going to need to pitch in more for college. This means young people will be looking for good financial opportunities, which we happen to provide.

Yes, selling books is challenging and difficult, and not everyone can or should go for it. But for students who have the self-confidence to accept the challenge, they will benefit greatly.

Yes, successful students work incredibly hard, putting in many hours of hard and sometimes very frustrating effort. But when I was selling books while a student at Harvard, I cannot recall a single time when I paid my tuition bill after the summer that the bursar asked me, “So, Dan, how many hours did you have to work to make this money? Gee, good for you-you are a really hard worker!” In contrast, they didn’t actually care one iota how I came up with the cash as long as it was there.

Bottom line: no one can control the economy. But what we CAN control will keep the economy from hurting students’ businesses, which is OUR business, and that is the good news.

As my friend and colleague Nate Vogel says of dealing with times like this,

1. We go to the people. We don’t have to depend upon them coming to us.
2. More people will be home, and easier to find to show our products to.
3. Education is valued more than ever – and our products help with education.
4. Our products are not considered ‘luxury goods’, therefore are affordable to each family.
5. The MOST important variables in a student’s success are within the student’s own control.
6. We’ve come through this kind of thing before, and we will come through it again.

The top student dealer selling our products this past year made more than $55,000 profit for himself during the summer months alone. We asked him to make any comment he wanted regarding his success. His reply: “It’s the economy.”

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