The only certainty in today’s global economy is that nothing is the way it was. Commodity prices shot up, and then settled back as the economic downturn took hold. The formerly safe assumptions of low costs for energy and transportation, cheap labor and little environmental regulation in developing nations, and advantageous currency exchange rates now require reevaluation.

What is clear is that we are staring into the jaws of a global economic recession, and plans for 2009 that were predicated on soaring oil, packaging, and commodity prices need to be adjusted to reflect greater volatility and potential deflationary pressures. Consumer spending fueled by easy credit drove the economic boom. Now, a credit crunch has hampered consumer spending to a degree that has shocked retailers. Higher inventory levels, shoppers’ increasing demand for discounts, and fundamental changes in consumer spending behavior have made retail a challenging environment in which to operate. But as with all challenges, this one is accompanied by opportunity. Leading retailers will simultaneously sustain themselves during the downturn and build capabilities for the next wave of success.

As recessionary pressures squeeze consumer spending, retailers are taking numerous measures to handle the crisis, especially in cost cutting. The danger in a downturn, however, is that a focus on costs will preclude positive action in other areas.

Our extensive work with retailers of all varieties tells us that leaders in the field that intend to survive in the short term and thrive in the long term will intensively focus on four areas:

• Price and promote to capitalize on consumer spending and switching trends
• Implement “smart allocation” to increase profit and improve the shopping experience
• Boost efficiency to strengthen profitability
• Build capabilities for the long term.

Retailers find themselves facing a welter of uncertainty as they wait to see how changes in credit availability, commodity prices, and consumer demand will pan out. The one thing that is clear, however, is that waiting is the last thing they should do. It is only by taking decisive action now that companies will offset pressures on their top line, enhance their profitability, and emerge in a stronger financial position to make the investments required for long-term value creation as the economy rebounds.