Companies Reassess Priorities While Consumer Demand Remains Low
Abby Long is the Senior Managing Editor at PMG.
The following is included in PMG’s Summer Briefing Series, exclusive content and commentary provided to PMG clients 2/week on the marketing and business news that’s making headlines.
Q2 has come and gone. Can you believe it? Me either. If you’re wanting to take a trip down memory lane, I highly recommend this H1 recap by the Morning Brew. I’d forgotten half of these things even happened, but that’s probably for the better.
In today’s briefing, we’re providing insight into the consumer trends and news shaping late Q2/early Q3 activity and sentiment across verticals.
Dining & QSR
Entertainment & Media
Hospitality & Travel
Let’s dive in.
Across verticals, it’s no secret that a lot of things are in flux. Companies are using this time to reassess their priorities, with many reversing decisions made earlier in the pandemic while others push full-force into digital and scale back brick-and-mortar. Businesses that reopened in the late spring are now forced to close again, with new unemployment claims maintaining steady around ~1.5 million, week after week. And above all, consumers are reporting new levels of anxiety and restlessness ahead of the holiday weekend with summer camps closed, live sports weeks away, and politics seeping into seemingly every aspect of life.
As a result, consumer demand remains low. First reported by eMarketer, “according to June data from YPO, 50 percent of CEOs worldwide say that diminished demand for their company’s products and services is the biggest obstacle their business faces right now. Additionally, 44 percent believe changes in consumer behavior are among the greatest obstacles to their business’ viability.”
From The Drum, “when determining what to buy, value, quality, and reliability still matter more to consumers than brand purpose and social virtue, despite today’s contentious and ever-changing cultural conversation.”
With a surge of coronavirus cases hitting states across the US, the next challenge facing brick-and-mortar retail is figuring out what to do next, whether that’s updating in-store policies to comply with a patchwork of new mask mandates across states, or in some cases like Apple, making the move to reclose stores in communities facing those new outbreaks. Plenty of technology has arisen to this moment to help retailers manage public health, sanitation, and social distancing. And while some brands take drastic measures to close stores or implement tech advances in-store, others like Saks Fifth Avenue, said the recent spike hasn’t slowed down in-store shopping.
July 4th retail trend: Firework sellers are recording huge gains in firework sales, with some reporting increases of “200 percent to 300 percent in sales,” according to the American Pyrotechnics Association.
With more shoppers opting to stay home and rely on ecommerce to fulfill any shopping needs, many brands will be spending Q3 investing more into online strategies, specifically those that have suffered from mall closures and consumer behavior shifts. One example is Forever 21, which has announced a partnership with WITHIN to revamp the fast-fashion retailer’s branding, ecommerce, and performance operations. And they’re not the only one.
Brands across verticals are accelerating digital strategies: Nike says it anticipates layoffs as the brand reinvests in priorities, Microsoft announced it would be closing its retail stores, and Barnes & Noble is closing its NYC bookstore while also downsizing its headquarters, to name a few.
And right before Q2 ended, Macy’s reported its Q1 earnings, sharing that sales were down 45 percent for the 13-week period ending on May 2nd. On the call, Macy’s said that though its digital business has shown very strong performance, sales are falling again in states such as Texas where COVID-19 cases are on the rise, causing the brand to take a more “conservative view” with forecasting while anticipating sales at “stores will trend down about 35 percent from a year ago.”
On the other side of the spectrum, current events haven’t slowed M&A activity down a bit with Lululemon acquiring Mirror, an at-home fitness equipment brand, for $500 million. It’s the leisurewear brand’s first acquisition and likely strong evidence that virtual, at-home fitness experiences will stick around after the pandemic subsides.
Of course, earnings season will be here before we know it, giving us a clearer picture of how current events are affecting the biggest brands in the business.
From Glossy Co., “while there have been some winners in the beauty category — namely utility products like hand sanitizer, soap, and self-care products — sales of prestige beauty products in the US saw a 14 percent decline in sales YOY in the first quarter, according to NPD Group.” The article continues with “in tandem with a loss of sales, beauty companies, many of which are in the luxury segment,” have partnered with buy-now-pay-later services. In the last few weeks, Sephora, Estee Lauder, Aveda, and La Mer have each joined forces with the likes of Klarna and Afterpay to provide customers with more control over their financial decisions while purchasing beauty and personal care products.
In other digital acceleration efforts, L’Oréal Group brands are moving fast to test and incorporate digital shopping livestream experiences into the consumer journey. Perhaps the biggest news of the week is Kim Kardashian West agreeing to sell a stake in her cosmetics firm to Coty, increasing her net worth to $900 million.
For consumers, the summer season draws them to seek more casual, no-frills beauty looks. Pinterest reported a 5X increase in searches for ‘minimal nails,’ a 3X rise in searches for ‘simple makeup looks natural,’ and a 289 percent increase in ‘comfy casual’ searches, compared to the same period last year. Also of newfound interest: at-home personal care and grooming products. According to Brandwatch, consumers are utilizing social media for recommendations on good tools, tips for grooming, and tutorials for cutting one’s hair.
From The Wall Street Journal, “consumer-oriented companies spent the past decades trying to please just about everyone. The pandemic made that impossible, and now some no longer plan to try. Sellers of potato chips, cars, meals, and more have been narrowing offerings since the coronavirus snarled supply chains and coaxed consumers back to familiar brands.”
“Some executives said they plan to stick with fewer choices when the pandemic fades, saying it forced them to reconsider whether American consumers need such vast choices that sometimes overburden factories and stores.”
Companies (across verticals) that have already simplified their lineups and offerings include Harley Davidson, Outback Steakhouse, Kraft Heinz, Coca-Cola, Hershey’s, and Frito-Lay. As mentioned earlier, businesses are taking this time to reassess business strategies, reduce waste, and drive forth change to make up for revenue lost at the peak of the lockdowns.
Related: Dole Pledges to Eliminate Processed Sugar, Food Waste and Plastic Packaging by 2025
Similar to brick-and-mortar retailers, restaurants and quick-service dining spots are facing turmoil, with McDonald’s halting reopening plans amid spikes in coronavirus cases and Pizza Hut’s largest US franchisee, NPC International, filing for Chapter 11 bankruptcy. According to The Wall Street Journal, “on average, fast food and sit-down restaurants have trimmed more than 7% of their menu options to save time and money during the pandemic.”
From The Wall Street Journal, “struggling New York City bars and restaurants were dealt a blow Wednesday as officials delayed the start of indoor dining, citing concerns about the spread of the coronavirus.”
From Ozy, “[this quarter,] the S&P 500 index led the way, rising by 20 percent, its best since 1998, while the Dow average rose 18 percent, which investors hadn’t seen since 1987. Analysts credit huge stimulus efforts by both the Federal Reserve and Congress, in evidence earlier this week as the Senate approved a six-week extension of a small business stimulus program that was due to expire later this week. The bill would extend the Paycheck Protection Program, which has provided 4.8 million loans to help businesses survive the pandemic until August 8th.”
Similar News: Why layaway payment programs are surging in beauty
At the start of 2020, entertainment and media were already projected to face massive disruption — pre-pandemic — but now, many COVID-induced shifts may change the entertainment industry for good. Of those, streaming has surged among audiences, but with recent price hikes from the likes of YouTube TV and others, we’ll see if that continues among audiences.
After the recent surge in cases across the US, movie theaters are delaying reopenings, and production companies are pushing release dates like the live-action Mulan and Christopher Nolan’s Tenet into the fall. Quibi’s 90-day trial sunset in June with significantly fewer subscribers than anticipated. And at the end of May, The Wall Street Journal reported the new mobile streaming platform had only garnered 1.5 million active users, and now, the company anticipates to land only two million paying customers by the end of 2020. For reference, Quibi’s target was 7.4 million subscribers by the end of its first year.
Plenty of insights were announced at last week’s Newfronts — see the highlights by our Brand Media team here — including new ad types, viewership data during insights panels, and more. On the Upfronts side of the equation, production slowdowns in Hollywood are likely to have wide-ranging ripple effects as we inch closer to the fall TV season.
From Ozy, “while Major League Baseball is still planning to play made-for-TV games later this month, the minor league season was canceled for the first time in history. The announcement came three months after the season was postponed due to the pandemic, and hot on the heels of MLB’s decision not to send players to the minors this year to hone their skills.”
July 1st marked an important milestone in the world’s recovery from lockdown. American Airlines expanded flights back to full capacity while the European Union reopened its international borders to travelers who originate from countries where the pandemic is being effectively contained; the US, Russia, Brazil, and others were not on the list of welcome entrants.
According to the newest data from eMarketer, US digital travel sales in 2020 will fall by nearly 50 percent YOY, as those who do travel are more likely to choose domestic car trips over bigger-ticket international travel, which will further depress sales. Airports, cruises, and lodging are “among the US travel sectors that will suffer the most.” Safety remains consumers’ number one concern when traveling, and the availability of a vaccine is shaking out to be a primary factor in determining future travel plans.
After Apple’s successful WWDC last month, it looks like virtual corporate events may become the norm. According to US marketing professionals polled by The 614 Group, “virtual events, [and more] specifically, large gatherings such as company-wide events and those with headliner speakers will become the norm post-pandemic. Some marketers also believe that smaller gatherings will also become more frequent, at least for the time being.”
From eMarketer, “66 percent of B2B organizations in the hospitality and tourism category is reportedly seeing significant disruption to their business due to the coronavirus. Other hard-hit B2B segments include personal services (60 percent), education (52 percent), wholesale (46 percent), and manufacturing (46 percent). Of note, the B2B sectors reporting minimal impact when compared to others were tech and telecommunications (21 percent), financial services (28 percent), and energy and utilities (29 percent).
It’s been a busy week in the tech space. TikTok and other Chinese apps were banned from India, and “more than 500 advertisers have now said they will pause spending on Facebook in protest at its policies on hate speech,” according to The Information. In response to consumer demands and the changing times, social platforms have quickly implemented new measures to take on hate speech.
Reddit introduced new policies and initially banned 2,000 subreddits, including “The_Donald,” a popular community built in support of President Donald Trump. Many of these subreddits have been inactive for months, drawing into question why the platform decided to ban them now.
YouTube enacted similar measures, barring six popular channels for violating its policies, and demonetizing plenty of others.
Twitch (temporarily) suspended Trump’s official channel for violating its rules against hate speech.
According to Global Web Index, as consumers grow increasingly comfortable using online tools in their everyday lives, personal information is more exposed than ever before, and privacy concerns have been thrust back into the spotlight. According to a June 2020 GWI survey, 42 percent of Americans are concerned about how the government will use their personal information, 40 percent worry how companies will use their personal information, and 40 percent are worried about contact tracing.” Of course, this heightened sense of personal security could not come at a more opportune time for lawmakers with the enforcement of California’s Consumer Privacy Act taking effect just yesterday.
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That’s all for this week. We hope you have a safe holiday weekend. We’ll see you back here on Monday.
9 MINUTES READ | May 6, 2020