Are These Businesses Still a Good Idea?
A lot can happen in two years. The iPhone, for instance, has gone from newly released to nearly ubiquitous. As we've witnessed, the economy has changed drastically. Business ideas that seemed like a slam dunk in 2006 now require a more cautious approach.
As recent Washington, DC-based National Retail Federation statistics prove, Americans are scaling back. Retail industry sales for December fell 2.2 percent from December 2007 and total holiday sales declined 2.8 percent. As Americans are tightening their wallets, potential business owners need to do more front-end research on business ideas before jumping in.
Here's a look at five businesses that were topping "hot" lists in 2006 and 2007, but that have seen a slowdown in growth amid the struggling economy. Find out how and why they've changed and what you should consider before starting one of them.
When upscale restaurants in Los Angeles and New York City start offering discounted tasting menus, you know times have gotten tough for the food industry. Meal assembly is one segment being hit particularly hard.
For parents who wanted to serve their families home-cooked meals, but didn't have the time to browse cookbooks, make lists, shop for groceries and prepare dinner, meal assembly kitchens offered a solution. In 2005, the concept made Entrepreneur's list of "Hot Trends to Explore for 2006." The number of locations, including franchises like Super Suppers and Dream Dinners, jumped from 173 in 2004 to 566 in 2005 and then to 1,149 in 2006. Store numbers peaked in 2007 at 1,411, but declined to 933 in 2008, according to EasyMealPrep.com, which tracks the meal preparation industry. In addition to the economic woes, store owners have had to compete with restaurants offering carry-out and grocery stores that continue to add prepared meal options. For moms that don't want to spend time assembling their meals at stores every Sunday, these other options can prove more appealing. In fact, some stores have added prepared meals ready for pick-up to their menus. Vermeulen, however, says that this approach could make it even more difficult for stores to differentiate their value to consumers.
Revenue for many of the stores began to decline in March 2008, says Bert Vermeulen, an industry consultant and founder of Cheyenne, Wyo.-based Easy Meal Prep Co. He cites the price of gas and the economy as culprits. Also, as home values decline, store owners who funded their businesses using home equity lines of credit have had to cut their losses.
Vermeulen predicts the next six months will see more locations forced to close their doors. He says successful stores will be able to improve on the original concept with tactics such as educating customers about nutritional content and offering specialized meals, like organic and gluten-free.
If your baby's first word is Gucci, you may need to re-evaluate your spending. Yet babies outfitted in modish labels are nothing new. For Forbes' "Sneak Peek 2006" report, one retail expert declared babies as the "new in-crowd" and noted that retailers were "coming after them in droves."
In fact, sales for home furnishings and accessories for infant, preschoolers and toddlers--known as the ITP market--grew 10.6 percent in 2005 and 12.7 percent in 2006 to $9.5 billion. In 2007, however, growth slowed to 3.3 percent, according to Rockville, Md.-based research firm Packaged Facts. Growth for 2008 isn't expected to be considerably stronger.
A June 2008 Packaged Facts report attributed the impeded growth to the economy, gas prices and cyclical adjustments (wear, tear and replacement). The report's author, Timothy Dowd, a senior analyst for the firm, says the market was being driven by influential "Yoga Moms," many of whom will spare no expense on their babies. Their spending trickled down to less-affluent moms, who would save to splurge on certain items. While some believe that the highest-end sales aren't affected during economic downturns, this time is different, Dowd says.
But don't expect the silver-spoon treatment to come to a complete halt. "The factors that were driving the ITP market before the crash will revive and drive the market again," Dowd says. "Once America's tastes have been upscaled, it's hard to go back. And that applies to any category." In the meantime, retailers can stock up on the Bugaboo Bee stroller that sells for just over $500, a bargain compared to the $900 Bugaboo Cameleon.
Private jet travel
With long security lines, flight delays, added fees and underwhelming customer service, the popularity of private jet travel isn't surprising. In 2007, Forbes declared the concept one of its "10 Travel Trends You Can't Ignore," noting that the number of private jet companies had increased to 500 from 100 just five years earlier.
While still out of reach for the average American, private air travel became accessible to more travelers when a range of options began emerging. Rather than having to buy or charter a plane, travelers could choose from fractional ownership jet cards that buy time on a flight of jets, and block charters that provide access to a network of operators.
"As those hybrid models have come in, they've attracted more people into private air travel," says James Butler, CEO of Bethesda, Md.-based Shaircraft Solutions, a consulting firm that advises clients on private air travel.
At the same time, business-class-only airlines, including MAXJet and Eos, which have since gone out of business, also were doing well. "The concept started strong because there is a massive gap between $700 and $4,000 tickets," says Gabe Saglie, senior editor for New York-based Travelzoo. "But for the American traveler, the price tag trumped the cost of travel."
Butler says the economy has resulted in private flight operations declining 25 percent from November 2007 to November 2008, the largest drop recorded. Fliers are trying to get out of capital-intensive investments like fractional ownership and moving more toward jet cards. Butler believes that the strong players in the industry will survive and that once people have the means, they'll return to private travel. "It's not that people don't love the service," he says, "it's how much they can afford."
Pet boutiques and grooming
As splurging on babies gained in popularity, so did pampering pets. Small Business Trends declared pet-related businesses one of its "Top 10 Promising Small Business Opportunities for 2006." From 2004 through 2006, the pet industry grew steadily, by about $2 billion each year, increasing $2.7 billion to $41.2 billion in 2007, according to the Greenwich, Conn.-based American Pet Products Association. Of that total, 64 percent was spent on food and vet care. The industry further increased an estimated $2 billion in 2008, although that figure might be slightly lower after fourth quarter numbers come in, which will include a slower holiday season, says APPA president Bob Vetere..
He predicts that owners will continue to spend on necessities like food and vet visits, but that boutique and high-end products like cashmere sweaters and pricey blankets will take the biggest hits. For pet boutiques, these products tend to carry the highest margins. Some pet owners also have started grooming their dogs themselves or are spacing out visits. Vetere says, however, that as the economy recovers, owners who feel guilty for cutting back will return their pets to the laps of luxury.
Also making Entrepreneur's list of "Hot Trends to Explore for 2006" was home staging. Few areas have changed as drastically since then as the housing market: According to the Chicago-based National Association of Realtors, existing home sales have declined from 6.48 million in 2006 to a projected 4.49 million in 2008. At the same time, the average sales price dropped from $221,900 in 2006 to a projected $181,300 in 2008. Active listings also have declined in cities across the country, meaning less business for home stagers to compete for.
With houses remaining on the market for an average of 11 months vs. 6.5 in 2006, sellers may turn to stagers to set their homes apart from the competition. But for sellers with little to no equity in their homes, adding another expense on top of necessary home repairs and Realtor fees may prove to be too much--especially considering the number of DIY shows advising viewers on how to prepare their homes for sale. With real estate markets varying sometimes considerably from city to city, carefully weigh factors such as active listings, fluctuations in home values and household income before risking your own home equity on this business idea.
Even in the best economic times there's a fine line between a trend and a fad. When times get tough, a hot idea can fizzle out just as quickly, so do your research and take careful consideration.