Responding to Covid-19 - Analysis by Sector

Every industry is experiencing the unprecedented effects of this global pandemic and businesses face a worrying time securing the future of their organisations and staff, servicing their customers, and protecting their brand.

Widespread social isolation, travel bans and remote working each provide various challenges.

For many industries, this extraordinary situation is tremendously damaging and many will struggle to recover. For those that do survive, it’s likely a ‘new normal’ will emerge.

Groceries

In the week ending March 17, it is estimated that 15 million more visits than usual were made to UK supermarkets, with the average spend per trip increasing by 16%. Supermarkets took 51% of all retail sales, an increase of 7% on mid-February. A combination of stockpiling, people working from home and restaurants being closed have seen a large increase on the demand for groceries.

However, many online grocery delivery services are struggling to cope with the increase in demand, with stories of three-week delivery times for certain services. Significant investment in this sector over recent years – think Ocado, Walmart, Target and Amazon – shows its potential and now could be the time to realize this ‘new normal’, if the companies can rise to the challenge. Those brands who deliver on their promises and secure the trust of a new wave of customers will reap the rewards in the future.

Food Delivery

The restaurant industry, worth $863 billion in the US and £38 billion in the UK, has been hit incredibly hard, with forced closures across the board and organisations from small family businesses to large corporations struggling to survive. From convenience and fast food outlets to restaurants, hospitality and catering services, the food service industry is facing its greatest challenge in modern times.

Despite spending more time at home and a dip in consumer confidence, there will still be a demand for restaurant-quality and takeout food. Ordering food online is not a new trend, given the rise in the number of digital food services over the past few years; but, the current situation is set to push demand and provide brands with a bigger chance to test and demonstrate their order-to-go tech. Domino’s Pizza wants to hire 10,000 employees to help delivery operations.

Brands promising ‘contact-free’ delivery and payment, comprehensive takeout menus, reduced delivery charges and loyalty points are making early moves to take their slice of a booming opportunity.

Luxury

The luxury sector was at the epicenter of the early stages of this crisis. COVID-19 hit Italy in the midst of Milan Fashion Week, causing a number of designers to rethink their show formats and collections. The likes of Armani, Dior, Gucci, Hermès, Max Mara, Prada, Chanel, Versace, Burberry and Ralph Lauren have all cancelled or postponed shows.

From the production of luxury clothing goods in northern Italy, to leather and jewelry in the south, luxury has come to a standstill. Foreign buyers around the world are cancelling orders of Italian textiles and products, impacting the entire clothing supply chain.

The outbreak of the virus in China, being the largest growth market for luxury, also had a hugely negative effect on demand. According to Forbes, if China is an indicator, the luxury market in the US alone can expect to take a hit of up to €40 billion.

But all may not be lost. It has been suggested that, with luxury purchases being emotional investments, the luxury industry could bounce back quickly, in celebration of coming out of the other side, as was seen after the Second World War II, 9/11 and the most recent recession.

Fashion

In terms of retail, footfall in central London plummeted by a colossal 63% in recent weeks. Now that stores have been forced to close, the retail sector – with fashion at its center – looks set to change for good.

Fashion retail works in seasonal cycles: create inventory, borrow against inventory, sell inventory. Stores that had lined up clothing lines for Spring are now shut, with inventory unlikely to see the light of day. Many department stores have stopped accepting Spring lines, sending them directly back to designers without payment, with designers having paid production costs.

Social isolation could wipe out an entire season of social events, holidays, parties and weddings – all drivers of fashion purchases. Added to the lack of consumer confidence and economic uncertainties, it’s a difficult time for brands.

For retailers that have struggled to adapt to the recent changing consumer habits and digital shift, this could prove the last straw. With many announcing poor results after Christmas, many will use this as an excuse for longer-term shortfalls.

A lot of businesses have struggled to adapt to recent consumer preferences in terms of shopping and fulfilment. Those brands and retailers that were yet to embrace digital at the core of their business will be forced to change. Decision-makers can use the pandemic as a catalyst to make structural business changes, with less friction from other staff within the business. For example – closing shops, focusing on supply chain and fulfilment efficiencies and adapting their routes to market to stay afloat.

Many online retailers are already promoting sales events, free delivery and loyalty initiatives, and other online perks to shift their spring inventories and fill the void of shuttered brick-and-mortar stores. In terms of shifting from physical retail to eCommerce, this enforced disruption may have a huge impact on forcing the trend forward by some time.

Beauty

Beauty retail is expected to suffer in a similar way to fashion and luxury sectors. Pop-up stores, retailers and department stores are closing, and catwalks and landmark fashion events that shape seasonal trends have been postponed or cancelled. Makeup artists, hair stylists and other beauty professionals have had to stop their services.

Reduced travel and supply chain issues are expected to have significant implications. Estee Lauder claimed that in 2018, travel retail made up 18% of the total $13.7 billion in annual sales, while companies such as P&G claim that 17,600 products have the potential to be affected by the supply chain issues.

Despite remaining open for healthcare, pharmacy and personal care needs, Boots has closed its in-store beauty and fragrance counters as part of the government’s new measures to shut down all non-essential services.

With in-store try-before-you-buy being seen as particularly risky during this time, brands and retailers will have to shift their approaches. This is a sector that has embraced digital in recent years as a way of engaging audiences and a route to market, and the likes of Sephora and Ulta have actively encouraged consumers to engage with their online tools and experiences.

Travel

The impact on the travel industry is as catastrophic as any. Travel is worth $5.7 trillion globally and responsible for an estimated 319 million jobs; roughly one in ten people employed on the planet.

Airlines are estimating $113 billion in lost revenue. The Centre for Aviation said most airlines in the world will likely go bankrupt by the end of May 2020. Many of the world’s largest airlines are looking to governments for support to remain functional.

The hotel industry has estimated at least 50% of jobs may be lost, and leading hotel and tourism CEOs recently asked the US government for a $150 billion bailout. Cruise companies – at the centre of some of the early COVID-19 news stories – are in doubt.

We have seen challenging periods for travel in modern times due to terrorism, natural disasters and geo-political issues, but nothing on this scale. Very few businesses would have contingency plans in place to deal with such an impact.

Where possible, travel companies are urging travelers to postpone trips, instead of cancelling. Holding on to capital with the hope of improved times on the horizon is the best chance of staying afloat.

Live Entertainment and Events

Similar to travel, the events industry is set to suffer greatly from a period of social isolation. Cinemas, theatres, sports events and entertainment venues of all genres and sizes have been closed. Many of 2020’s blockbusters have had their release dates pushed back and production for future movies and TV has ceased.

Music, theatre, and sports events have all been postponed or cancelled – including the 2020 Tokyo Olympics announced this week – meaning huge uncertainty not only for those organisations and venues, but also for the surrounding businesses and industries, such as: sponsors and advertisers, broadcasters, media, ticket sellers and local businesses.

Streaming and Gaming

With live entertainment off the cards, one sector seeing a spike in traffic right now is digital video streaming. Up to a 20% increase is estimated in the amount of time subscribers spend watching streamed content, with millions of new customers expected to join Netflix, Amazon Prime, Disney+ and Apple services worldwide to fill the void of other entertainment. Expect a battle here for new customers, with extended trial periods and large volumes of new content – Disney brought forward the online release of Frozen 2 by three months.

Equally, gaming is expected to see a boost. Videogame usage during peak hours has seen a rise of 75% since social distancing was encouraged in mid-March, and self-isolation a week ago. One Call of Duty online game saw 15 million players in one day on March 10, dwarfing the previous record of 10 million.

Home, Garden and Home Office

Another area that may see a lift from the current situation is home, furniture and DIY. Whilst there is lower consumer confidence and store closures – B&Q for instance announced that they have closed stores – there are reasons to be positive.

As consumers cancel travel plans and spend more time at home, some may look to fill the void with home improvement projects that have been postponed for investment in holidays or other high-value items. Also, with Spring approaching – known as the key spike time for home and garden retailers – now could be the time for consumers to fill some of their increased time spent at home with smaller house and garden projects, or make some adjustments to that home office to cater for remote working and home schooling.

Fitness and Home Fitness

Fitness habits are also being changed by enforced isolation. With the widespread closure of gyms and sports and leisure facilities, this industry will see a radical change. Gyms and sports clubs will struggle for the foreseeable future, with many urging customers to continue paying memberships, where possible, to ensure they remain in place for when restrictions are lowered.

For those that can offer digital or home-based products and services, there is an opportunity for sports brands and home fitness initiatives to engage consumers. Regular sports and fitness enthusiasts are looking to fill their daily or weekly void with various activities that they can practice at home. Businesses are proactively pushing health and wellbeing initiatives to counteract the negative social impacts of isolation.

The Aaptiv fitness app says that it has seen a boost in new users and engagement, and a 50% increase in engagement for non-equipment programs, popular with home users. Online fitness personality, Joe Wicks, had almost 2 million views of his first live virtual PE class.

Brands and retailers are getting on board. Nike’s ‘Play Inside, Play for the World’ campaign aligns with home fitness activities. UK sports retailer Sports Direct planned to remain open, despite government restrictions, claiming its products and services would help people maintain a healthy lifestyle during this time; however, had to close after the government disagreed with their position.

A Digital Future

For those that can shift to focus on digital products and experiences there is hope. These businesses should continue to find ways to stay connected with their employees, customers and partners virtually. The technology is available and now is the time to capitalise; those that do, will not only find themselves better equipped to rebound when things turn around, but will also find that they have strengthened the bonds with those who matter most.