The (Long-Term) Coronavirus Opportunity?
The Coronavirus has clearly turned the fashion world on its head. Fashion brands are announcing massive revenue drops. Luxury conglomerates down double digits. And with consumers unable to go anywhere, a global recession is a real risk. Yes, the news is bad. But could it also be an opportunity?
To kick off our Coronavirus “Sur-Thrival” Series (available here), our founder Brandon Roe addresses the threat but also opportunities available to us to better serve our consumer through these dark days… but also after we make it through.
Brandon Roe is an author and the host of The Fashion Consumer, a popular podcast that offers fresh ideas and insights into the ever-changing fashion consumer. With a rare skill set that brings together cutting-edge technology and consumer-centered marketing, he has worked with clients in eight countries and three languages over the past two decades.
Fashion Consumer Trends in 2020
Kim: Hi Brandon. Today we're discussing what's at the top of everyone's mind, the Coronavirus. What's it like where you are?
Brandon: I'm in Austria at the moment and we’ve entered full lockdown. Today is March 23rd. We're recording this on Monday to get it ready for broadcast on Wednesday. We've been under lockdown for just over a week and I got to tell you, it's really strange. We are only able to do essential shopping. Supermarkets, drug marts, the pharmacy, those sorts of stores are open. Interestingly enough, in Austria the tobacco shop is also considered essential, so they're open too. Always have to get your cigarettes, I suppose. It's really interesting. Obviously, I'm in consumer research and so I pay attention as I see things.
My wife and I were in one of the local drug stores on Saturday. You can tell that people are starved of outside entertainment. I've never seen people generally so interested in every single shelf of the drug mart. It's like they were window shopping. “Wow. Look at all the fresh options we have.”
So, boredom is setting in. We're getting used to it. Cases here in Austria are still increasing and the federal government has basically announced that everything will be closed. All nonessentials, including schools, until at least Easter Monday. We will see how it goes. It's very quiet. People are understandably nervous but we're managing. How about you, Kim?
Kim: We are in New Jersey, right outside of New York. I just read New York has 5% of all the cases worldwide. Our governor is doing a really good job. He's encouraging. He's made sure all non-essentials are closed. Liquor stores are still open. Pet stores are still open. The veterinarian is still open. But not much else. Restaurants can do delivery. Cases keep rising here. They're starting to roll out tests and the numbers are going up. Right now we're doing a lot of walking around the neighborhood and cooking what we have, trying to not get too worried and see what happens.
Brandon: The new normal, right? Wow. That's what we're going to be talking about today. This new normal and where we are and where we've come from as this story has developed very rapidly. And most importantly, what we can do about it as fashion brands.
What do we know so far about how the virus is affecting the fashion industry? Indeed the story is moving very fast, and as mentioned, we're recording this on Monday, March 23rd. Over the next two days the story will probably evolve continually, but what we know right now is retailers all over the country are shutting down. Layoffs have started. I read a report just yesterday that it's expected in the next couple of weeks at least 2 million people are expected to apply for unemployment within the US. This is a huge, huge thing.
On the other hand, within the fashion industry, we're starting to see interesting developments. For example, Project Runway’s, Christian Siriano is shifting some of his production facilities – I suppose both to keep his staff in play but also to contribute to the solution by producing protective masks. People are, of course, under quarantine. They're locked away in their homes. They are very nervous and afraid. So far as of this recording, the governors of Illinois, New Jersey, New York, and California have ordered their citizens to shelter-in-place. And Kim, you were telling me that's like a quarter of the entire US population. The stock market has tanked. It has dropped double digits. What are we down to there? Maybe there's been a balance, but the last number was below 30%, at least.
As mentioned, Goldman Sachs says 2 million unemployment claims are expected to be filed even this week. The virus itself has made consumers afraid of their lives, naturally. And so the natural consequence of all of this is that consumers are pulling back as it relates to purchases from everything that isn't related to survival. So canned food, water, toilet paper, which is a very interesting story in and of itself.
The natural consequence of course, of all of this, is that brands – this is in particular discretionary areas like fashion – they're suffering. This is especially true in areas of the most discretionary purchases of luxury. Last week on Thursday, I believe it was Burberry, announced that sales had dropped 40% to 50% in the previous six weeks and they think it could get even worse. Maybe 70% to 80% drop in total. The stock prices of big luxury conglomerates are down double digits.
As I said, all of this is very fluid. The story is developing very quickly. One thing we can be sure of is that the world is very different than even a couple of weeks ago.
Kim: How are things likely to play out?
Brandon: Consumers are going to pull back for now, but they're stuck at home. They have a lot more screen time and they’re bored. And the mail is still delivering. It is an essential service, after all. So it's looking like they're going to buy more online.
And in fact, they already are. Amazon announced last Monday that it is looking to hire 100,000 workers to deal with this additional unprecedented demand. I was on Amazon this morning looking for something for my son and there's a notification at the top of the window saying that they are experiencing extended delivery delays. Clearly Amazon has benefited greatly in terms of sales from this, but now they have to deal with fulfillment.
In my conversations with fashion brands who sell a lot online, we're seeing the same pattern, too. Things were fine until COVID-19 hit their home market. Then sales plummeted, just cratered overnight. But in some cases, they're starting to see site traffic increase and these brands are hoping that as consumers are bored and starting to look around, this will actually convert back into sales.
A little bit longer out, we should see some bounce back. Consumer spending is restrained, but at the end of the day, consumers still want to consume and once we can leave our houses and feel safe again, we might just want to celebrate that. This is the brush with mortality phenomenon and we'll have a short term bounce for sure.
Kim: What mistakes are brands making right now in the midst of all this?
Brandon: Understandably, if you look at the revenue drops, they're panicking. Sure. And it's a justifiable response. Many are trying to reduce their costs and reduce fixed items like leases as best they can, but renegotiating such contracts can naturally be hard. So they're looking for more discretionary items.
For many firms, outside of payroll, the biggest item is marketing and advertising. And therein lies the biggest mistake: cutting back on the marketing and advertising. Now more than ever, brands have to stay in front of their customers. They have to remind them that they're around. Yes, it does make sense, the pullback from new customer advertising, but resources really need to be put into nurturing the relationship with existing customers for when times are good again and consumers are willing to spend. Then there you are and you've nurtured that the whole way through.
One other thing I probably should say is a second mistake is the brands that are still advertising and marketing – the way in which they are doing this is often by promoting heavy price discounts. I do understand the short-term rationale for doing that. They are seeing their sales goals plummet. They're not going to hit them at all. But that is a mistake. The potential to devalue the brand in the process for short-term gain at long-term expense is very high. There are smarter ways to do it.
Kim: What's the right path, or the smart path, forward for fashion brands in this?
Brandon: The first thing is to accept that it is really no longer business as usual. Although this immediate new chaos will pass, the effect is likely to last a lot longer than that if we do end up in some sort of global recession as some economists are now predicting. It could be a bumpy ride for a couple of years.
What is the solution then? In a word, it comes down to technology. The economic trends were already in place, but they really accelerated. We're seeing that in the market as well as with our own clients how this is playing out.
One brand that we're working with, they had a physical presence, but over the last week they've been forced – while they were already moving towards it, now they've accelerated their process. They are now doing video conferencing. They had a team of in-person stylists and they've moved them into doing video conferencing with clients. They are serving clients online and this allows them to still deliver that custom level of service but doing so without endangering anybody. Another trend that has accelerated is this idea of livestreaming. This is where a presenter walks around a retail store and shows off items that can then be bought online in real-time.
Again, it's been growing, but now it is set to explode. At least here in Austria, we're starting to see a lot of services outside of fashion that previously would be done in person now being livestreamed. Probably the one that sticks out the most is that morning mass at the cathedral in Vienna is being livestreamed on YouTube. So people who can't get to church can tune in and follow along with the mass that way.
Of course, behind the scenes brands are having to quickly get used to working online with each other from home. For a lot of people, this is a big shift, but it was something that was progressing much slower than the way we are now. And, after all of this is done, once this chaos has subsided, is probably going to be something that sticks around because there is a lot of advantages to a company that can get their heads around a working digitally.
Kim: What is likely to be some of the long-term effects of this?
Brandon: Brands will continue to go online and there's no way back from this. The trend has been picking up for years, of course, but not everybody was involved. Now if they want to make sales, specific to luxury fashion, they've traditionally relied heavily on the retail advantage. Now they're being forced to use this channel more aggressively. This includes brands that have long resisted the trend, like a Chanel, for example. There's not much choice. If you want to sell to consumers, you have to go to where they are and where they are right now is the other side of the internet connection. If we do end up with another global recession, luxury will come back. But it's probably going to be much more minimalistic than in recent years, where the trend has been towards maximalistic showing off that you have the money. We’ll probably go back to something akin to what we saw after the financial crash of 2007 to 2009, where people still bought luxury, but it was much more subdued. It wasn't so obvious.
We're probably going to see the end of the department store concept. It was already struggling. It was just not fitting with what consumers demanded. But now that you can't actually go to any department store, this is probably going to speed up this massive disruption. At the same time, all of this disruption, all of this chaos, really could lead to new and exciting creative options that we just haven't thought of yet. As they say, necessity is the mother of invention, so we'll adapt like we always do and there are opportunities here and hopefully we'll come out stronger for it at the end.
Kim: Do you have any other words of advice?
Brandon: I would probably say when in doubt, focus on your consumer. Focus on serving them better. They are the heart of your business. They're the ones keeping everything else going. I'd also encourage listeners to sign up for our new Coronavirus insights service. Head to www.thefashionconsumer.com and click on “Coronavirus” in the menu at the top and you'll be taken to it. A couple of times a week, we will be producing practical insights that will help your fashion brand not only get through this current chaos, but perhaps end up just a little bit stronger and more efficient and more effective than the way in which you went in. So you could check the website out. It's thefashionconsumer.com. Look for “Coronavirus.” Look for that word at the top in the menu and give it a try.
Kim: Thank you so much for sharing your advice with us today, Brandon.
Brandon: Thanks, Kim.