COVID-19 Crisis: Understanding The Great Lockdown

Another WFH week down, many more to go. 

In today’s COVID-19 briefing, I’m taking a closer look at: 

The U.S. economy

Newfound challenges for commerce

Earnings and the new ways of doing business

Every week, I end Friday pondering two things. One, the optimist in me insists that there’s no way the news next week could get any more outlandish. Two, a historian will one day write about this week’s events in great detail. These are extraordinary times, don’t forget to take pause and give yourself a break.

All that to say, I hope you get a chance to duck out of Zoom calls early today, you deserve it. We’ll see you back here on Monday with the developments you might have missed from over the weekend. 

Headlines this week concentrated predominantly on financial news, and refreshed economic outlooks as titans of industry began Q1 corporate earnings season, and stimulus checks hit bank accounts for the little guys. 

The pace of the West’s economic collapse is without precedent, as job losses resulting from the coronavirus outbreak officially trumped jobs gained over the last decade — wiping out millions of positions in a matter of weeks and leaving over 22.4M filing for unemployment. But these numbers are likely an underrepresentation of the outbreak’s magnitude. One unfortunate reality is that many people haven’t been able to file their claims yet, with state unemployment offices utterly overwhelmed and without the digital infrastructure or staff to support the influx. 

In total, projections calculate total unemployment in the United States to hit low-ranging double digits, with some estimates claiming 20%+ of the U.S. workforce will be unemployed. The U.S. government’s $349B emergency fund for small businesses ran out of money Wednesday night. Stimulus checks, plus the Paycheck Protection Program, were to be a lifeline for the millions of small businesses. Still, additional funding will require congressional authorization, which remains stalled along partisan lines.

And I’m afraid other countries aren’t faring much better. On Wednesday, the Managing Director of the International Monetary Fund (IMF) informed G20 finance ministers and bank governors that half of the world’s countries (100+) have asked for emergency loans to weather the financial crisis resulting from the pandemic. As such, the IMF expects the global economy to contract by 3% in 2020, which it claimed will result in the “worst financial and economic crisis since the Great Depression.” 

In a surprising move, Japan implemented a national state of emergency, an expansion of its previous measures as the country’s outbreak worsens. The island just north of Japan, Hokkaido, recently reimplemented a state of emergency after a second wave of new infections emerged after the previous order was lifted. 

Waves of new cases are officials’ biggest fear, but it’s not only government or healthcare workers that are nervous about returning to ‘normal.’ In China, consumers are reportedly slow to return to their old spending habits and demonstrating wariness of crowded spaces, all lingering effects of weeks in total lockdown. Chinese officials confirmed that China’s economy shrank 6.8% in Q1 compared to last year, ending an era of unrivaled (over-half-a century-long) economic growth that survived the SARS epidemic, the Great Recession, and other bleak spots in modern world history. The IMF forecasts that Asia as a region will not register any economic growth this year because of the coronavirus pandemic.

China’s slow rebound demonstrates the precarious, intricate act of restarting an economy. It’s evident there’s no perfect way as it truly depends on consumer sentiment, confidence, and willingness to engage and follow whatever direction governments and leadership give them. In the latest KFF Health Tracking poll, over 92% of Americans are practicing social distancing, which has surprised public health experts who predicted that only ~50% would comply with local directives. 

As much as I’d like to insist that we’re all rule-abiding citizens (who eat our vegetables, frequently exercise, and haven’t worn sweatpants every day this week), the more likely reason that 92% of us are social distancing is that our lives have been significantly disrupted. Not surprisingly, this is evidenced by the same Health Tracking poll:

In other top developments, mounting job losses are causing impatience, as many states took this week to extend social distancing requirements, yet also announced detailed plans for rebooting the economy. While governors and public leaders are focused on the immediate, many in the private sector are looking further ahead. This week, Google announced it would slow hiring for the remainder of 2020, and Facebook will ban company gatherings of more than 50 people until June 2021, drawing a line in the sand for when businesses (and likely, mass gatherings) would return to normal. 

The IMF expects a ‘partial’ economic recovery in 2021, but that any economic corrections and gains are conditional on the improvement of the health crisis (read: a vaccine is created, or contact tracing methodology and risk mitigation (mass sanitation) techniques are adopted internationally).

Others, such as Boeing, which restarts plane production next week, are facing a monumental test for how to keep workers safe on the job. For many, the safety of distribution workers had, unfortunately, been an afterthought. When stores were suddenly forced to close, many brands saw ecommerce as a lifeline for making up lost in-store traffic and sales, but what happens when a distribution center (which fulfills those ecommerce orders) is forced to close after an employee falls ill? Deep cleaning and thorough sanitation, temporary closure, delayed shipments, and a growing backlog of orders. 

Amazon is in a unique position as both a distributor of goods and a leader in ecommerce. Already, Amazon delayed the fulfillment of goods deemed nonessential and stalled the acceptance of new Grocery customers after fervent demand kept operations at max capacity. The company continues to face significant labor challenges, many of which are playing out on the public stage. In France, warehouses and deliveries will be shut down for five days to allow the company to improve “health protections for its 10k workers.” This comes after Amazon faced significant controversy over its worker conditions in U.S. distribution centers earlier this month. 

Interestingly, Amazon shifted its ecommerce structure by removing recommended products from pages, a move implicitly encouraging shoppers not to buy more than they need. One thing is for sure: COVID-19 is top of mind for Amazon, with Jeff Bezos’ annual letter to shareholders (which was released this week) focusing heavily on the company’s response to the outbreak.

The domino effects of the outbreak on the advertising industry have been slow to hit the headlines until this week. Most notably, Expedia Group chairman Barry Diller shared that the company would cut its $5B in ad spend. As many other companies face similar decisions to slash budgets, publishers are facing tough decisions, too. From CNBC, 

“The vast majority of online publishers in the U.S. say they’ve had advertisers cancel or pause ad campaigns with them as the coronavirus pandemic and lockdown hurts advertisers, according to results of a new Internet Advertising Bureau survey.”

This, in turn, resulted in the recent layoffs across the advertising and media industries. 

Of course, the decision for companies that rely on foot traffic and social gathering (think everything from restaurants, bars, and retail stores to concert halls, sporting events, and movie theaters) to reopen is not that simple. It’s nowhere near as straightforward for, let’s say, AMC, Chili’s, or Main Event to stay closed and prevent groups from gathering until June of next year like Facebook is doing. Returning to “business as usual” is dependent on two things: local governments easing restrictions and consumers feeling confident enough to spend and get back to socializing in public settings. 

As such, we’ll likely see consumer-facing companies test and iterate different approaches for reopening their doors once we move closer to reduced shelter in place orders nationwide. What this looks like is to be determined. A few initial conversations suggest BOPIS and other variations of drive-thru and pick-up orders at retail stores will become more commonplace. Remember, retail brands are eager to unlock and access depreciating merchandise that’s been hidden away in vacant stores across the country for the last 30-45 days. 

While most, if not all, distribution centers have been deemed essential business, warehouse shelves will empty eventually, and restocking has already become more challenging with global supply chains facing COVID-related constraints. 

The potential to return to some resemblance of normal could not come at a more critical time for retailers. U.S. retail sales fell a record 8.7% last month, and April is likely to be worse. From NPR, 

“The March drop was the largest monthly fall since the Commerce Department began tracking retail sales three decades ago. The previous record was a 3.9% drop in November 2008, during the Great Recession.”

“Americans are still spending a fair amount on food and online deliveries, but not enough to offset the massive drops in shopping for clothes and accessories (down a stunning 50.5%) and furniture (down 26.8%). Spending on autos, parts, and gasoline also plummeted.”

Ecommerce and online shopping numbers are holding strong, but not enough to overshadow the loss of store closures across sectors. (Tack on the drama unfolding around funding the United States Post Office and we’re in for an even more complicated situation). The challenge of opening the economy relies on many factors. Public health, economic interests, consumer confidence, and financial stability are all determinants that weigh into the decision. This is why all eyes are on the ‘Opening Up American Again’ Plan announced by the U.S. Administration on Thursday.

A key talking point in President Trump’s announcement of the Plan was that states are empowered to make their own decisions, and they are doing just that. 

In the West, California, Oregon, and Washington announced a partnership and regional plan to lift lockdowns as conditions permitted. Thousands of miles away, Midwest states banned together and announced similar plans for how businesses would reopen in their cities. The announcement came soon after citizens in Michigan disobeyed social distancing orders to protest the stay-at-home order and business closures. New Jersey and New York, Connecticut, Delaware, Pennsylvania, Rhode Island, and Massachusetts announced a regional partnership as well.

As we all know, consumer spending is the biggest driver of economic activity (and growth). Without it, businesses may eventually reopen, but if no one feels comfortable enough (or financially able) to patron, shopping malls and restaurants will be just as empty as they are now. 

“If people don’t have confidence that it’s safe to go out and go to your job or go to a store, they’re just not going to go regardless of what the government says,” Joshua Bolten, CEO of the Business Roundtable, a trade group for the world’s biggest corporations, told CNBC.”

Across the patchwork of plans, the SOP looks to be:

Control new infections and hospitalizations

Virus testing and tracing

Gauging whether hospitals can manage another virus surge

How to handle social distancing at work.

People are eager to return to work but also eager to understand how their health will be protected in the process. As of now, there’s no clear (and agreed-upon) path forward with recovery more than likely to be slow.

PMG continues to produce thought leadership around the COVID crisis, with some leaders appearing in the press this week with their opinions about what these circumstances mean for marketing. 

Angela Seits in Wired about the influencer economy

Ting Zheng in The Drum on WeChat’s privacy controls

Angela Seits in Adweek about influencer marketing

Kaitlin McGrew in Search Engine Land about ecommerce amidst COVID-19

We hope you enjoyed this briefing, and have a safe and restful weekend.