All it takes is a walk down any street in a major metropolitan area to see how many consumer-facing businesses are responding to the coronavirus crisis, which is unfolding, and worsening, by the day. With governors in at least 19 states having slapped restrictions on bars and restaurants, many are now closed.
Chains from McDonald’s to Shake Shack have roped off their seating areas. Much of the retail sector, meanwhile, is a ghost town. Companies from Nike to J.Crew, Nordstrom to Sephora, have all shut down their stores. Patagonia made news last week by closing down not only its retail outlets, but all of its operations, period.
These are short-term responses to a crisis and, experts agree, they are wise and necessary ones. They will also cost a great deal of money, not just because of lost foot traffic, but also because of the outward rush of money from corporate coffers as many brands continue to make payroll for workers who are not presently working. (“All of our hourly workers will continue to receive pay in alignment with business as usual operations,” Apple CEO Tim Cook promised on Friday.)
Yet even as companies improvise responses and gird themselves for severe, short-term losses, an unsettling fact remains. Even optimistic health officials believe current lockdown conditions are likely to remain with us for two months. President Trump has mentioned restrictions lasting until July or August. And officials in the U.K. have even warned that the epidemic could drag on into the spring of 2021.
Nobody knows how long this restrictive period will last, but the mere uncertainty of the pandemic’s duration calls into question just how well companies are equipped to manage a long-term disruption to their business. Taking it on the chin for the next quarter is one thing, but business may well be severely disrupted into the quarter after that—or longer.
“From an operational standpoint, most organizations right now are dealing with the immediate term, with how do we get people up and running and feeling connected culturally and having access to what they need,” said CBX chief engagement officer Satoru Wakeshima. “For the longer term, you have to question: How prepared are companies?”
That’s hard to know exactly, since most of them are either not talking or sticking with general statements about the immediate steps they’re taking such as implementing work-from-home procedures and shifting as much business as possible to online and delivery models. A Coca-Cola spokesperson told Adweek that “we are all taking it day by day as we receive updates from health officials and the government.” A spokesperson for Walgreens said that “the situation remains very fluid” and that the company is “working around the clock to monitor the situation.”
While that situation develops, however, analysts and economic experts say changes in the long-term business picture will be just as critical as the immediate challenges brands are facing right now. If there is good news, though, it’s that much of the distant-horizon planning can be done while simultaneously addressing some of today’s issues.
It’s time to address technological shortfalls
Douglas Laney, data and analytics principal at Caserta and the author of Infonomics, observed that a number of organizations are presently scrambling just to equip employees to work from home—including many who’ve never had to work remotely before.
“One client [told me] their employees don’t have laptops to take home—so what are these people going to do? They can’t take their workstations home,” Laney said. “So, this client is renting and buying laptops for critical home workers.”
But while the IT guys are busy setting up remote-office capabilities, Laney said, it’s a good idea to consider whether employees will have the tools they need to stay home and work for a long period of time. Brands, he said, need to think about anything technological “that inhibits your company from doing business—you can’t sign documents or you can’t get someone on a meeting because your conference facility is crashing or you can’t reach each other because you don’t have the bandwidth. How do you get [employees] all prepared with proper security—VPN and antiviral? That takes time. It’s going to be an eye-opener for a lot of companies.”
Ecommerce won’t save the day, but it’s crucial
Industry watchers also suggest that if a brand hadn’t devoted major resources to ecommerce in the past, now is the time to do it. While many analysts have said ecommerce cannot replace all lost foot traffic (especially if consumers hit by curtailed or lost incomes have less money for shopping), it’s also true that in the wake of the coronavirus, over 46% of consumers are more likely to buy clothing online, and nearly 65% are more likely to head to the internet to buy personal care products, according to recent data from Red Points.
And if consumers are going to be cooped up at home for weeks or even months, those figures are unlikely to decrease. Amazon announced on Monday it is hiring 100,000 temporary workers to keep up with what svp of worldwide operations Dave Clark called “a significant increase in demand.”
“Shopping schematics are something to consider,” Wakeshima said. “There’s going to be a [continued] surge in online shopping. And many brands may have only had 20% of their business [online], and suddenly that’s going to increase. If that increases, you need to think about your online marketing strategy. And beyond that, can your organizational infrastructure handle the online sales?”
Mark Lewis, founder and CTO of Netalico, said at least one of his clients, whose business is wholly online already, has seen a sales volume increase of 2,000% in the past few days. And while traffic figures like that are well and good for the existing electronic retailers of the world, Lewis believes that now is the time for brands of all stripes to take a hard look at their infrastructure with an eye toward moving more business online.
“Even businesses with a retail presence … are shifting online, and these are pretty big CPG brands offered at Whole Foods and grocery stores,” Lewis said. “They are seeing their products sold out in stores. They’re seeing people buy online instead. It’s basically the path of least resistance.”
It’s also a good idea because, if history is any indicator, consumers might well emerge from this health crisis not only more accustomed to shopping online, but more likely to stay there.
Amie Song is an advisory specialist at Gartner who pays close attention to consumer trends in China, a country that got plenty of experience dealing with a highly disruptive epidemic in 2002 and 2003 with the SARS outbreak. Owing to a period of forced isolation on college campuses, apartment blocks and even rural villages, Chinese consumers got wise to ecommerce—and the habit stuck.
“Chinese ecommerce really took off after the last SARS crisis,” Song said, adding that ecommerce behemoths like JD.com and Tmall gained major traction with consumers in the wake of SARS. In the United States, then, “this is an interesting opportunity for a lot brands to think about their digital innovation.”
The supply chain challenge
Another dynamic many brands are sure to have to deal with in the long term is making adjustments to their supply chains. Wakeshima pointed out that most manufacturers only keep a limited stock of products in warehouses, and that stock is likely to be depleted before long, if it isn’t already.
Many manufacturing supply lines are in China, which itself is just starting to emerge from its own Coronavirus crisis and restart its lines. A number of American companies looked to relocate their manufacturing in 2018 in the wake of the Trump administration’s tariffs, but most American brands are still dependent on Chinese manufacturing. In the long term, then, “that requires organizations to rethink their supply chain,” Wakeshima said.
“That’s a major deal. They will all be scrambling. There are only so many suppliers aside from [the] go-to [ones]. Do you have procurement people? Legal people for the contracts? This is an infrastructure problem that organizations have run very lean in certain areas.”
Today’s marketing will not work tomorrow
At the end of January, when the coronavirus was reaching its peak in China, luxe conglomerates LVMH Moët Hennessy—whose brand portfolio includes Fendi, Dior and Louis Vuitton—and the Kering labels (Gucci, Balenciaga and others) donated $2.3 million and $1.08 million, respectively, to the Chinese Red Cross to help pay for medical staff and public health education. Since China is running about a month ahead of the United States in terms of the severity of the virus and commercial disruption, marketing consultant Deb Gabor thinks American brands might want to look at switching their marketing to these cause-related initiatives for the coming weeks or even months.
Setting aside the fact that such donations would do good in the United States, where 44 million people have no health insurance, corporations making headline-grabbing donations would “keep their brands front and center” without the risk of traditional advertising messages that would invariably come off as crass. Besides, she added, Americans worried about getting COVID-19 are probably not rushing out to buy luxury goods anyway. At a time like this, Gabor said, “I’m not thinking about my new Louis Vuitton handbag.”
Wakeshima agreed. “You may have marketing plans in the can ready to go—you’ll have to rethink that,” he said, adding that whatever marketing message a company is preparing for weeks or months down the road, it’ll be essential to stay away from any verbiage or pictures that don’t dovetail with the effects (even lingering ones) of a health crisis. “You can’t show a picnic or a large party or large crowds cheering. That’s sending the wrong message,” he said. “So again, if that’s your strategy, you might need to rethink that.”
What happens when no strategy helps?
Lawrence White, who teaches microeconomics at NYU’s Stern School of Business, pointed out that “there are very smart men and women who are running your brand-name companies,” and that many of them are, no doubt, thinking about all of these long-term measures. But he also observed that, for some brands, there is likely no way to avoid the gut punch the coronavirus will deliver.
“A company like GM, selling large-priced durable goods that almost everyone can defer his or her purchase of for a month or two, are going to be facing—if this [epidemic] goes longer—severe difficulties,” he said. “They’re going to be hurting big time.”
And airlines? As of Monday, they were in Washington asking for a $50 billion bailout.
There are only so many levers a company can pull. While laying off employees might stanch some of the bleeding, for many brands, the loss of sales revenue is unavoidable and for some, it will be crippling. And that’s hardly the limit of the bad news. A company that invested money in plants and equipment, for example, will still face depreciation costs. And while interest rates may have fallen into the cellar, many corporations still have debts to service. Nonfinancial corporate debt of large American companies stood at $4.8 trillion in 2003; it’s now up to $10 trillion.
Overall, White said, “We will see modest losses at first, but unless the virus experiences a turnaround within a month or two, we will see more severe losses for companies like appliance [manufacturers] or for Boeing. And it’s not going get any better. So except for your Amazon and delivery companies, this ain’t good news for anyone.”
Now for the good news
The long-term implications of the outbreak may offer little that’s encouraging, but Song did sound a cautious note of optimism. Looking at what’s happening right now in China, there’s evidence the recovery, when it comes, might well be a strong one.
“People are very confident [now] and they feel like the virus is contained in China,” Song said. “And now, they’re having renewed shopping behavior.”
Shoppers who didn’t spend much money in January and February are determined to make up for it now. “Restaurants and places that have started to reopen are booked immediately,” she said. “So I think it’s sort of like a more optimistic situation.”