Consumers (including businesses) are all stocked up on what they need, and there aren't any breakthrough new offerings out there to make them want to upgrade what they already have.
This situation happened in the golf business a couple of years ago. The industry is dependent on golf clubs and balls that will enable golfers to hit their shots straighter and (especially) longer. When the equipment makers failed to introduce new products that weren't much more advanced than the old ones, golfers stopped buying, retail inventory built up, prices were slashed and the industry went into a tailspin.
Of course, the golf business has one handicap that most other industries don't have to contend with-a rule-making organization called the United States Golf Association that discourages new products that work too well. The USGA is worried that the equipment makers are plotting to employ technology that will enable the golf ball to catapult off the face of the club in a spring-like manner, and in fact the association has designated a driver made by Callaway Golf Co. as "non-conforming."
At a time when the golf industry is trying hard to interest more people to take up the game, the USGA stance doesn't strike me as very productive. As an owner of a golf publication, Golfweek, I am just as interested as the USGA in protecting the integrity of the game. But is golf so fragile that it will be compromised if recreational golfers (the target market for expansion) can hit the ball a few yards further?
While I'm in the mood to gripe, let me ask you another question, bearing on the general notion that products shouldn't make it difficult for buyers to master them. Why do the car companies make it so complicated to set the clocks embedded in their dashboards? You're lucky if the manuals even mention the clock, and if they do, you need an advanced degree in rocket science to figure out how to reset it (blame daylight-saving time for making me grumpy).
Now is not the time to make it harder to buy a product, whether it's a golf club or an automobile. Business customers, perhaps because they decided applications for e-commerce aren't as numerous as they thought they'd be, cut back on orders for the newest and fastest Internet router, among other equipment, making do with the old until something a lot flashier comes along.
Consumer goods are also being hit. The reason is the same: One company's products aren't different enough from the other guy's. "The bottom line is we're not winning consistently with consumers," Procter & Gamble Co. CEO Alan Lafley told analysts. "They're often voting for competitors' brands," which may be the same but are cheaper.
We should have known a slowdown was coming when marketers started paring down the number of brands they were selling. Too many were clones of the competition and of each other.
Another sure sign that something bad is about to happen is when advertising starts diverting your attention from the product.
Brendan Ryan, head of FCB Worldwide, told me a while ago that "the most critical element in advertising is having something meaningful to say." He reminded me of David Ogilvy's great line-"If you've got nothing to say, sing it."
"Well, there's a whole lot of singing going on these days," Brendan said.
Singing and stupidity. I used to really enjoy those Volkswagen and Sprite commercials. Now, all of a sudden, I don't get what they're talking about. Did someone leave the team, or have they run out of things to say?
So to sum up, economic downturns aren't caused by high interest rates. They're caused by a paucity of hot new products. An early warning sign for the downturn is when advertising turns unintelligible and stupid.
The reverse, I'm happy to report, is also true.