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SKU’d Thoughts

SKU’d Thoughts 42: What will be the net effect of Coronavirus on consumer products and retail?

2020 started off as a rough year for consumer products and retail startups; Casper pricing its IPO below original filed share price, FTC blocking Edgewell’s acquisition of Harry’s and Brandless’ pending shutdown. But of course, all of this pales in comparison to the COVID-19 global pandemic we are currently facing. The world is effectively in a holding pattern and the stock market has taken a dive.

So, what does all of this mean for the consumer goods and retail space?

In the short term, business has been taking a big hit and thousands of people are losing their jobs because of several factors including but not limited to supply chain-related issues, adjusted hours of operations and the loss of a reliable consumer base.

Supply Chain Disruptions

The obvious impact of the virus on both industries has been supply chain disruptions, as factories in China went offline for a period of time while it looked to eradicate the virus. In January, according to CNBC, “the word ‘virus’ or ‘coronavirus’ was mentioned by 27 different companies on earnings calls”, in an effort to preempt the effect this disease will have on the overall health of their various businesses.

In mid-February, a couple of reports solidified the supply impact of the pandemic. Apple announced to shareholders that it does not “expect to meet the revenue guidance we provided for the March quarter.” And Amazon reportedly indicated that it has started to worry about having enough inventory for Prime Day, its midsummer sales bonanza.

Temporary store closings

With pleas from health experts and government officials for social distancing to minimize the spread of the disease and “flatten the curve”, many retailers across the country, including Apple and Nike, have temporarily closed down their stores. Simon Property Group, the country’s largest mall owner is also temporarily closing its malls and outlet centers which will certainly affect retailers who had initially only planned to limit store hours. Patagonia took things a step further by closing down not only its retail locations but all of the brand’s operations.

Some of these retailers have assured customers that they will still be able to purchase products via e-Commerce. Given the current state of uncertainty, consumers may only be concerned with getting staple survival items like non-perishable foods and hygiene products.

Losing the traveling Chinese consumer

Upper-middle-class Chinese consumers shop overseas for high-end products they can’t get at home or trust to be authentic. According to Gartner, more than 66% of Chinese consumers’ luxury purchases are made outside of mainland China. For this reason, luxury retail brands like Louis Vuitton and Gucci increasingly depend on traveling Chinese customers who spend $90 billion a year on leather goods, clothes and other luxury goods.

Given this pandemic, that predictable spending is gone. Oxford Economics forecasted the U.S. will experience a loss of 1.6 million visitors from mainland China in 2020. A big loss for the U.S, with estimates putting the average spend per Chinese tourist at close to $7,000.

Ok. So, what about the long-term? When we overcome this pandemic, we’ll likely see a greater acceptance of e-commerce by consumers.

In the last 10 years, the percentage of US retail sales that happen via e-Commerce has grown from 5.6% to 16.0%, according to Digital Commerce 360. This is an indication that consumers are growing more comfortable with purchasing without needing to touch and feel. During this time of quarantine where stores are closed or have limited hours, consumers will more than likely opt for ordering items online. According to Red Points data, over 46% of consumers are more likely to buy clothing online, and about 65% are more likely to purchase personal care products via e-Commerce.

The category that will push e-Commerce to a closer share of retail spending is grocery. According to Statista, food and beverage accounts for 3.2% of online commerce. But online grocery has been projected to capture 20% of the total grocery sales by 2025 and reach $100 billion in sales. The reality of having to order staple items online during these uncertain times coupled with (hopefully) retailers meeting and or exceeding customer expectations will translate to consumers fully accepting online commerce across more categories.

These are definitely trying times. I am not a pandemic expert but I will urge everyone to please listen to the health experts. Stay home. Stop the spread. Save lives.

Follow me on Twitter.

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Think pieces about CPG and retail space in relation to startups.

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Kofi Ampadu

Kofi Ampadu

Made in Ghana. Assembled in New York. Found World Wide.

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