Lessons from the Dumpster Fire
Brands can learn a lot from recent shifts in consumer spending.
Any way you cut it, 2020 has been an absolute and unequivocal dumpster fire of a year. The economic fallout from COVID-19 has hit many industries, and hit them hard. From new automobile purchases and air travel to movie theater tickets and in-restaurant dining, businesses of all stripes have hit historic lows as U.S. GDP shrunk by nearly 33% in the second quarter of this year. Somehow, the word “catastrophic” feels like an understatement.
Not all companies are hurting, of course. Some verticals are doing quite well, as you might expect. Grocery stores are seeing record numbers as more people stay home and cook their own meals. High-speed broadband hookups are also seeing record-breaking installs as the internet is now a critical gateway for many people’s e-learning, remote work and entertainment needs.
There is, however, a collection of companies doing unexpectedly well. Their performance may seem unusual at first, but after some inspection, a larger picture emerges — a pattern of consumer behavior that may have gotten its start in the pandemic, but could be reflective of larger and more enduring changes afoot in our purchasing preferences.
What are these patterns? And more importantly, what lessons should brands pay attention to now as we move forward into this brave “new normal” world? Let’s take a look.
Lesson 1: Focus on Form and Function
Companies delivering high levels of aesthetic and functional value are weathering this economic storm extremely well. This is particularly true in the athleisure space, standing in stark contrast to the performance of the fashion industry overall.
Consider this: in April alone, clothing sales in the U.S. fell 79%, while purchases of sweatpants were up 80%. A nearly equal and shocking shift in performance over the same time period.
It doesn’t stop with cozy sweats for a night of Netflix on the couch. Yoga clothing maker Lululemon reports a significant rise in demand for their products since April. In fact, prices for their yoga pants have risen 7.2% since then, with about 45% of their stocked inventory sold in July versus 15% the year before. That’s a big difference in moving product.
It’s not just established brands that are outperforming. Swiss upstart performance shoe brand On Running launched their first-ever fashion sneaker smack dab in the middle of the economic crisis. While retailers were closing their doors, On actually accelerated the launch of their new Cloudnova shoe from June to April. Pre-orders filled up immediately and several inventory drops have sold out almost as quickly as they hit the company’s e-commerce shelves.
The Takeaway: Consumers are clearly still willing to pay premium prices for products they consider to be high-quality and deliver real functional benefits in their day-to-day lives. If brands can strike the right balance of form and function, they stand a much better chance of building a loyal following that will stick with them through thick and thin.
Lesson 2: Deliver Value
Times are tough for the luxury industry. With 40% of surveyed U.S. consumers reporting “becoming more mindful of where I spend my money,” COVID-19 clearly has people rethinking their priorities. This spells bad news for luxury good makers as recent shifts could signal more permanent changes in the sector.
Kering SA, owner of the Gucci and Yves Saint Laurent brands, reported a 30% decline in revenue in the second quarter of 2020. Even worse, French luxury conglomerate LVMH — the makers of such renowned luxury brands as Louis Vuitton, Marc Jacobs, Dom Perignon and Bulgari — reported a staggering 84% decline in net profit for the first half of the year. Ouch.
This trend isn’t isolated to leather handbags and fancy watches. In fact, the luxury industry as a whole is projected to contract by an astounding 45% for the full year in 2020.
Contrast that with the performance of mid-market clothing essentials brand Entireworld — who saw a 662% increase in March sales year-over-year — and a pattern becomes clear. Ostentatious displays of wealth and luxury are not where consumers are looking to spend their money these days. Because, let’s get real, who are you going to impress from your living room?
The Takeaway: High-end goods have substantially less social currency in a world where people are seeing and being seen with less frequency — in both personal and professional settings. This makes the value exchange of price and comfort for social status much less attractive. Making quality products financially accessible to a broader audience and delivering value beyond the most gratuitous displays of performative luxury both are safe bets for brands looking to stay relevant in this economic climate.
Lesson 3: Never Underestimate the Power of Convenience
In a world where people aren’t leaving their homes as frequently, some brands are rising to the challenge to deliver convenience as a major part of their value proposition, and the market is rewarding them handsomely.
At-home exercise company Peloton has capitalized on the quarantine blues with a 172% surge in sales and more than 1 million people subscribing to its streaming fitness classes, leading to shares of the company rising more than 220% this year. Even as gyms begin to re-open, it seems that many customers are sticking with the Peloton model and opting for the more convenient and controlled at-home experience. This could represent a major and lasting shift in behavior and should factor into the planning of brick-and-mortar fitness chains to add at-home products and digital services to their offerings.
It’s not just premium exercise equipment that’s reaping the benefits of convenience. Innovative grocery store brands are waking up to the convenience power of “click and collect.” In August alone, 25.5 million households bought groceries online and then picked them up at stores, up from 10.1 million households in August of 2019.
Amazon-owned grocery chain Whole Foods tripled their online grocery sales in Q2 compared to the same period last year. Whole Foods also increased access to its curbside pickup orders after noticing that roughly 40% of pickup orders are from customers trying the service for the first time.
Walmart, too, sees the potential in providing a convenient curbside service. The behemoth company now offers free grocery pickup at more than 3,500 stores. Walmart shows no signs of slowing down as it recently reported its customers add more items to their virtual carts when they order online for pickup than they do when shopping in person at the store. Assuming this translates to increased average order value, curbside pickup will become a staple in the grocery store experience of the future.
The Takeaway: To win in this environment, brands must recognize that their customers’ lives are busy, messy and complicated. Companies that can optimize their offering to make “easy” a central brand tenet will reap the benefits of that investment for years to come.
Lesson 4: Simple Pleasures Go a Long Way
Even in the face of an unprecedented economic downturn and record unemployment, many people are still finding ways to enjoy the small things in life that bring big joy. This is especially true in consumables, where a modest investment can have outsized returns in personal delight.
California-based coffee company Blue Bottle is a premium coffee provider charging upwards of $35 for 18oz of ground coffee. Even still, that company reports a 150% increase in e-commerce sales since March, and they have added 300–400 new home delivery subscription customers every week during the pandemic.
Similarly, Peet’s Coffee saw a 70% increase in home subscription orders in May 2020 as compared to the same month last year. Subscription sign-ups peaked in April, but Peet’s is still seeing five times more daily subscription sign-ups now versus pre-coronavirus levels.
In the sweet treats category, the world’s largest producer of ice cream, Unilever, saw at-home ice cream sales rise 26% in Q2 of 2020. This success is fueled mainly by the performance of their Ben & Jerry’s and Magnum ice cream brands, as consumers look to unwind after a long and COVID-anxiety-ridden day. Because sometimes, you just need ice cream.
The Takeaway: Even while sacrificing a lot, many people are still willing to find room in the budget for the simple pleasures that bring big joy, however fleeting that feeling might be. Moving forward, these higher-end at-home purchases could have staying power as more people look to “treat yo’ self” as part of their daily self-care routine.
The Road Forward
The world has changed, that much is true. But how much of this change is permanent and how much of it will experience the “rubberband effect” and snap back into shape after the coronavirus is behind us?
Only time will tell, but it’s clear that some brands are outperforming their peers through a winning combination understanding their customers’ values, priorities and preferences.
Take these lessons to heart as you start to plan your brand’s strategy for the future. Look to your customers for insights and build experiences around them that meet their needs and deliver real benefit — however they define it.