Aside from the obvious job losses and profit drops, in your experience, how have previous recessions influenced the interior industry?

Before I answer, I’d like to preface this discussion by saying that I am no great businessman or entrepreneur. I’ve never made vast amounts of money or been hugely profitable. Still, I have managed to give employment to a few dozen staff over the years, earn a reasonable living and have kept going throughout it all, avoiding bankruptcy and liquidation.

I do not have expertise or authority, financially or otherwise, apart from having experience of working through these downturns – both as a principal and partner of a practice – and for several years as a client in large-scale residential development.

In answer to the question, I think the initial impact each time has been to heighten awareness of exposure, i.e. practices running with large overheads and allowing clients to run up debt, all seemingly covered on the balance sheet until a client defaults. This awareness helps to create a cautionary approach for a practice principal or partner – something not always evident when times are good.

Also, I think suppliers have been made more acutely aware of exposure and, as a result, are now avoid tying up too much capital in holding stock – often manufacturing as required. We now find lead times for fabrics and furniture are usually in the 10- to 16-week zone, which I certainly didn’t experience in the early ‘80s, for example.

In the ‘80s and ‘90s, I had been involved in the retail and residential sector, and after the 1989/92 recession, I noticed a sharp decrease in the length of our design programmes. Retail clients didn’t want to commit to designs being worked on prior to leases being signed. Plus, they didn’t want any time to lapse before fit-out after the lease had been signed. Time and money were tight, with all-nighters and weekend working a given!

At the time of an economic downturn; pipelines diminish and major clients in development – commercial or retail – may either abandon projects or put them on hold, depending on their financial standing. Furthermore, private clients often take stock, concerned about the impact on their own future income. In such a way, a full order book of commissions can disappear disturbingly fast.

Having experienced three economic downturns, what recession would you say hit the hardest, and what strategies did you follow to succeed?

By far, the worst was the 1989/92 recession. I had a practice of around eight people involved in several residential projects and two large commercial projects – one, a privately funded school and another, a sports and leisure facility. It was these two large projects which caused me the greatest hardship.

At the time, I had received bad advice from my then accountant (beware!), who suggested I use an overdraft facility as the cheapest way of borrowing money. Fine; until things go wrong (banks are often the first to pull the rug from underneath you). As the recession took hold, bank interest rates climbed – alarmingly until they were in the 17% mark – and property values dived as did our clients’ equities in their respective projects.

We were running 30-day invoicing, so two months of solid design work could be done before we expected payment, and if payment was late, we were into the third month before realising there might be a problem. When this happens on two large projects that use most of your design team resource, it’s not difficult to visualise the outcome...Exposure. Also, we had placed orders for clients on our trade accounts, and although we traded transparently, in some instances, clients’ orders were only invoiced to them monthly...Exposure.

When the inevitable happened, and both clients went into receivership, there was a total of somewhere in the region of six months of fees outstanding. It’s very difficult to withstand the financial impact of that in a small practice, particularly as this all happened in the very same week. So, exposure to creditors, suppliers, lease, bank, tax and VAT.

Strategies

To a degree, some of this was flying by the seat of my pants, luck and good advice from my – by this time – new accountant.

1. The advice from my accountant was to act quickly and reduce my overheads. This meant, sadly, letting staff go. All fully paid up, holiday pay, bonuses, redundancy, etc., paying off the overdraft and any VAT to date (I had put some capital away, to do something nice with, but fortunately this was sufficient to deal with most of the above. Tax was deferred).

2. Next came the trade creditors, all but one accepted my proposal to pay them back monthly over a period of time, some amounted to years (in all, it took me three years to pay everyone back).

3. We then ran the practice by bookkeeping on a daily basis until we reached some sort of stability.

4. To reduce further risk, all suppliers’ orders were now on a proforma basis with me acting as the agent and client; either paying direct or into a client account at the time of order.

These are the lessons I learned:

1. Don’t panic! Bounce back and deliver. If you don’t deliver, you don’t earn, and also you don’t get referrals. It becomes a downward spiral.

2. Make quick decisions to reduce costs, don’t try to hang on to everything as the costs will just build and could end up in the loss of your business. Obviously, keep key, loyal staff if you can and be open with them. If they understand the situation, it’s much more likely they will try to work with you to help in some way.

3. Do deals with creditors as soon as you know there is a problem. Be honest with them; they would rather get their money over a period of time than lose it altogether. I was also successful, and lucky, in re-assigning my office lease; otherwise, that would have been another 10 years of anxiety.

4. Try to maintain a reserve fund for such occasions as this.

5. Get advice from accountants and lawyers as they will typically have experience of this situation.

6. Diversify. A ‘can-do’ mentality will widen your scope for future work, e.g. if you are in retail design, try offices or residential.

7. Finally, be positive. No one owes you a living, be resilient and move forward; we’re all in this together.

One other thing that became apparent, and was undoubtedly crucial in helping me survive this recession, was good client relationships. If you have built up strong client relationships, with trust and transparency at the core, then they may well help in finding work for you. I had several clients contact me when they knew I was in trouble and managed to find little jobs that needed doing – enough to keep the wolf from the door and help me build back up again.

Were there any ways in which previous economic downturns made the industry stronger in past years?

As I mentioned before, I think for many of us there was a lesson in what exposure meant and that as a result, being conscious of it, we are much more careful in our business practices to minimise such risk. I’m sure too that suppliers and contractors also revised their T&Cs and other areas of their business to reduce risk.

I also think, certainly during the recovery period in the ‘90s, that there was greater restraint with less excess both in terms of design solutions and corporate entertainment. As a result, I believe it increased our ability to create more considered design solutions along with a greater focus on client service – partly as a result of a competition to win commissions. Although we’re not quite there yet, I also believe that at the same time it engendered greater financial transparency in terms of supplying goods to our clients – something the BIID is striving for within our profession.

A final thought as to how our industry has strengthened is to take a look at the massive growth of online services to our industry – from suppliers of goods to educational resources. The downturn made suppliers look for other, less expensive ways than showrooms and costly advertising to reach their market. Online was the solution, enabling smaller, less-well-financed businesses to come into the marketplace; giving designers an even greater choice.

If the UK were to head into a recession, what would you say is the biggest hurdle facing today’s interior designers?

To state the obvious, either losing commissions or having them placed on hold and even if that hurdle is crossed, there is the very high chance of a lack of future work. As in any business, not knowing where the next penny is coming from is a tough situation to manage. I think all other issues can be dealt with operationally, but without fee income, these things are meaningless.

Are there any tips you’d offer to practices to recession-proof their businesses?

I would say, be resilient and diversify if possible. Ensure you don’t overstretch yourself financially – even in the good times – be prudent and put some capital aside, if possible, to cover any bad debt, VAT, rent, overdraft, etc. should the worst happen.

From my experience as a client (Design Director in a development company), the financial crisis of 2008 meant funding was no longer available for most of our projects. As my position suddenly became untenable, I needed to re-invent myself as a consultant once more. Maintaining old contacts, and new, throughout my period as a client was also instrumental in enabling me to find work. So, being flexible and having a positive outlook are attributes I would recommend acquiring.

Amidst rumours of the UK edging towards another recession, how do you predict the interiors industry to perform in the future?

I have talked with several designers and suppliers over the last few months, and everyone seems very busy. That said, things take a while to filter through to our profession, so it is difficult to tell if this will sustain. However, there are a lot of tower cranes around London at the moment – a good indicator that things are moving forward. I was speaking to a developer last week who has a scheme of over a thousand units, completing in 2023.

Plus, as I said in Inex’s previous article, I think we have the greatest designers and suppliers in the world, and by being positive, we will succeed regardless.