Running a business is a difficult proposition in the best of circumstances, but the odds of achieving sustained success become much longer in a time of economic uncertainty. Triggered by President Trump’s fluctuating tariff policies, events since the beginning of the month[April] — including jitters on the stock and bond markets, fears of renewed inflation and plummeting consumer confidence — have complicated the decision-making process for executives.
Difficult as current conditions are, they may be only the beginning of a paradigm shift in how economies interact, according to Erik Peterson, managing director for global business policy at consulting firm Kearney, who, along with his colleague Todd Huseby, gave a compelling presentation about Navigating Uncertainty on a recent NACDS Live webcast (it can be viewed at https://www.nacds.org/).
“I’m afraid that we’ve come to the end of a 30-year period of really remarkable political and economic liberalization,” Peterson said in a subsequent interview. “I think we’re kind of moving toward a Game of Thrones type situation that will be marked by more complicated geopolitical rivalries and tensions. Welcome to the new world, which has huge implications for any kind of a company with a big global footprint.”
In such unsettled times, where decades-long patterns of economic interaction are under severe strain, Peterson and Huseby encouraged businesses to engage in scenario planning. Focusing on high-impact, high-uncertainty scenarios can help executives better understand what to do today and how to prepare for whatever comes next.
“The exercise forces you into different worlds so that when the future comes, you are less surprised by what that might look like,” Huseby explains. “You’re not going to get it exactly right, but what you start to do is figure out what actions you should take in different future worlds. You’ll find that in some cases you chose the same actions in each world. Those are scenario neutral, and you should do those things right away. In other cases, you’re going to find it’s idiosyncratic. You only do this option if the world trends towards scenario A or scenario B.”
The main protagonists in the current trade war are the U.S. and China, which at press time had imposed respective tariffs of 145% and 125% on each other. The outcome of the confrontation between the two deeply intertwined economies will have profound consequences.
“Both systems have been moving toward a collision for quite a while now,” says Peterson. “We can think about an all-out trade war between Washington and Beijing, or we can think about some kind of deal down the road in which they engage not only about the terms of bilateral trade, but how they might modernize what I think we can all agree is an ailing international system. They’re in a great position as the two largest economies in the world to try to make that happen. And I think the Europeans would come along too.”
Where does the current economic uncertainty leave chain drug store operators, who are under enormous pressure from decreasing reimbursement levels in the pharmacy department and falling front-end sales?
“It makes a bad situation worse,” Huseby notes. “On the front-store side of the house, chain drug stores are already suffered from inconveniently high price points. If they don’t take drastic action, then they really can become much less relevant. On the pharmacy side, supply chain challenges are going to represent a wake-up call throughout the health care system in terms of what are we offering, at what price point and where the products are manufactured. That’s going to affect not only the drug stores, it’s also going to affect the insurers, PBMs and others.”
Already preoccupied with challenges that threaten their very viability, drug chains must now also prepare for an unknown future. They may be tempted to take a wait-and-see attitude toward macroeconomic developments. If they choose to do so, they proceed at their own peril.
