We asked our premium members to share their insights on the consumer sector after Covid-19. Below are the thought leadership pieces submitted by Alvarez & Marsal, Finsbury, Freshfields and J.P. Morgan.
Please note, these are the views of our premium members and do not reflect the views of the FT.
The government has celebrated retail’s restart this week, but shops opening their doors doesn’t mean that the sector will return to normal any time soon.
The retail experience has changed fundamentally. Shopping is no longer a leisure activity: stores have become purely transactional spaces where experiencing a brand matters less than getting in, buying goods and getting out again.
Dealing with high fixed costs is nothing new for retailers, but Covid-19 has accelerated this trend. At present, physical footprint essentially has zero asset value. All retailers need to reassess their store estates as a matter of urgency. Expensive flagships may become less important compared to local high street stores, for instance, which don’t require a journey on public transport.
Retailers grappling with their physical operations have another critical challenge: understanding where exactly their customers have gone. Marketing spend must be based on what consumers are actually doing, reading and watching. The ‘new normal’ means that what you knew about your customers three months ago simply doesn’t matter anymore – behaviours have fundamentally changed.
Everyone is devoting more time, attention and resource to digital, but getting the marketing mix right means questioning assumptions. TV advertising will likely still be important, but other elements of the media mix will need to be rebalanced. Will Tube ad budgets be channelled back into SEO and social media.
The outlook is better for pure-play brands that go direct to consumers and boast strong data on customer profiles and changing buying habits. These businesses could be attractive targets for private equity firms. Alternately, we may see consolidation with incumbents hungrier than ever for digital expertise.
Retailers will undoubtedly pull back from bricks and mortar, more spend will be directed to ecommerce, advertising and marketing solutions that can support a significant pivot in business models. Retailers investing in new digital technologies could be another driver of acquisition activity as we move beyond lockdown and a uniquely traumatic last three months.
Despite the doom and gloom in the retail sector, it’s important to remember that crises can trigger extraordinary innovations. Everyone now recognises the commercial imperative of understanding a customer base that spends significantly more time at home. The potential of delivery clearly stands out: who would have thought a three-course meal from a Michelin-starred restaurant could come straight to your door? However, it is not yet clear how to make these new models profitable.
We will see more examples of creative and personal retail experiences in the coming weeks and months. But these may be exceptions in a time of low revenues and tight budgets. Understanding exactly who and where customers are has never been more important. The retailers who can understand changing consumer habits the quickest will have the best chance of thriving through the coronavirus crisis.
Covid-19 has had an enormous impact on consumers’ shopping and leisure habits. It has caused serious disruption in many different sectors on a scale we have rarely seen before. While that disruption is likely to lead to new trends and opportunities in consumer- facing sectors, it also brings with it a degree of litigation risk. The sheer scale of the crisis means that large numbers of consumers, across a range of industries, may have suffered loss for which they could attempt to seek redress (each, a potential “class” of claims, where they give rise to similar issues of fact and/or law).
In the US, consumer class action litigation is well-established. However, in other parts of the world, the ability for consumers to bring claims on a coordinated basis is a more recent development. In Europe, funding for claims has become more readily available and the claimant bar has developed both in number and sophistication. Procedures are already in place to facilitate mass claims in many European jurisdictions, whilst in others they are still developing. A proposal for a new EU-wide class action regime is also currently under consideration.
These changes mean consumers across the globe are or soon will be in a better position to participate in mass claims regarding consumer rights than in any past crisis. Claimant law firms have already started to advertise for participants in such claims, and adverse findings from regulators relating to consumer-facing conduct could trigger further claims. Although it is early days, there are indications that claims seeking refunds and compensation for cancelled events and services will be a key battleground. Unsurprisingly, we have already seen these types of claims being filed in the US. In California (which has generous consumer protection laws), claims have been brought against gym companies, airlines, music festival operators, and travel companies. Claims against insurers who refuse to pay out for cancelled holidays, or under other policies, are also likely.
There is also the potential for personal injuries claims, where people have fallen ill at work, while receiving medical treatment, while travelling or on holiday - although plaintiffs would face major obstacles, not least in proving that they were exposed to Covid-19 negligently, rather than by a family member or in some other way.
The litigation landscape has changed markedly over the last decade, with mass consumer claims now becoming a mainstay in many jurisdictions. This will no doubt encourage more mass claims relating to Covid-19 than we have seen off the back of previous global crises, though they will still face many hurdles. Issues of causation, duty of care, and remoteness of loss will be key. Additionally, some governments, including the UK government, have already passed legislation that insulates operators of care homes, hospitals, and healthcare workers themselves, from litigation.
To mitigate the risks associated with such claims, businesses must pay close attention to their early stage responses to individual claims, public statements and positions, the documenting of internal decision-making processes concerning how customer complaints are handled and, of course, keep abreast of evolving public health regulation and guidance.
Perhaps the greatest unknown, however, is the degree of government intervention, the extent to which elected officials will promote combinations from within their own regions, if not countries, while preventing foreign acquirers from entering their borders and promoting vertical integration to enhance self-sufficiency and reduce dependency on “untrusted” outside partners.
Covid-19 has had an enormous impact on consumers’ shopping and leisure habits. It has caused serious disruption in many different sectors on a scale we have rarely seen before. While that disruption is likely to lead to new trends and opportunities in consumer- facing sectors, it also brings with it a degree of litigation risk. The sheer scale of the crisis means that large numbers of consumers, across a range of industries, may have suffered loss for which they could attempt to seek redress (each, a potential “class” of claims, where they give rise to similar issues of fact and/or law).
In the US, consumer class action litigation is well-established. However, in other parts of the world, the ability for consumers to bring claims on a coordinated basis is a more recent development. In Europe, funding for claims has become more readily available and the claimant bar has developed both in number and sophistication. Procedures are already in place to facilitate mass claims in many European jurisdictions, whilst in others they are still developing. A proposal for a new EU-wide class action regime is also currently under consideration.
These changes mean consumers across the globe are or soon will be in a better position to participate in mass claims regarding consumer rights than in any past crisis. Claimant law firms have already started to advertise for participants in such claims, and adverse findings from regulators relating to consumer-facing conduct could trigger further claims. Although it is early days, there are indications that claims seeking refunds and compensation for cancelled events and services will be a key battleground. Unsurprisingly, we have already seen these types of claims being filed in the US. In California (which has generous consumer protection laws), claims have been brought against gym companies, airlines, music festival operators, and travel companies. Claims against insurers who refuse to pay out for cancelled holidays, or under other policies, are also likely.
There is also the potential for personal injuries claims, where people have fallen ill at work, while receiving medical treatment, while travelling or on holiday - although plaintiffs would face major obstacles, not least in proving that they were exposed to Covid-19 negligently, rather than by a family member or in some other way.
The litigation landscape has changed markedly over the last decade, with mass consumer claims now becoming a mainstay in many jurisdictions. This will no doubt encourage more mass claims relating to Covid-19 than we have seen off the back of previous global crises, though they will still face many hurdles. Issues of causation, duty of care, and remoteness of loss will be key. Additionally, some governments, including the UK government, have already passed legislation that insulates operators of care homes, hospitals, and healthcare workers themselves, from litigation.
To mitigate the risks associated with such claims, businesses must pay close attention to their early stage responses to individual claims, public statements and positions, the documenting of internal decision-making processes concerning how customer complaints are handled and, of course, keep abreast of evolving public health regulation and guidance.
Perhaps the greatest unknown, however, is the degree of government intervention, the extent to which elected officials will promote combinations from within their own regions, if not countries, while preventing foreign acquirers from entering their borders and promoting vertical integration to enhance self-sufficiency and reduce dependency on “untrusted” outside partners.
We are aiming to emerge from the first phase of this crisis. Our households have gained a sense of the short-term effects of isolation, mass quarantines, travel restrictions and social distancing measures. In parts, the novelty of these arrangements has united nations, including a newfound federalist sentiment amongst European nations
The long-term impact of the pandemic is likely to be profound, prompting huge changes to consumer behaviour as well as relations between trading blocs and the assessment of credit risk by financial institutions.
Companies that ignore or underestimate these seismic shifts will do so at their peril. After an initial round of introspection sparked by issues such as access to liquidity and adjustments to deteriorating operating performance, corporations must start to think ahead about the second round of effects and imagine their role in an altered economy. Investors will hold boards and corporate strategists to account for any perceived complacency and lingering hopes that things will just go back to normal.
So, faced with an unprecedented threat to the global economy, how should corporate strategies adapt and evolve to ensure companies emerge stronger and better differentiated after the crisis? Where will we see the most dramatic shifts in consumer behaviour and who is set to benefit the most?
As we experienced in the wake of the global financial crisis, the main impact of this pandemic will be felt in people’s pockets. Millions of consumers affected by job uncertainty, a slowly recovering economy and the threat of re-infection will cut spending, increase savings for a rainy day and demand better value for money.
Some sectors will flounder while others flourish. We are likely to travel less for non-critical purposes, rely even further on technology, boosting digital interaction online for work, socially and when shopping for goods, further exposing the bricks-and-mortar model, while increasing our scrutiny of data privacy and the legitimacy of information available online. At the same time we will have greater health awareness as we seek to boost our immune systems and wellbeing, accelerate the adoption of clean sources of energy, examine product safety and its provenance, and generally enhance our ethical thresholds.
One of the ironies of the pandemic and its related social-distancing measures is that it is bringing people closer together. In this changing world, it is likely to have the same effect on corporations, sparking a fresh wave of consolidation as they seek out the benefits of scale to adapt to this new order. Through business combinations, companies will gain the necessary resources to access new skills and technology, accelerate innovation efficiently, responsibly reduce their cost base, while reducing capacity in the worst hit sectors.
Increased scale will also address the possible long-term changes in parts of the financial sector’s attitude to credit risk. The financial sector, while more strongly capitalised and supervised than in the financial crisis will nevertheless emerge from the pandemic somewhat traumatised by the sheer scale of credit requested and granted during the crisis, not only from corporations but critically also from consumers as well as medium and small businesses. In this environment, highly adaptive industry leaders with top-notch capabilities and well capitalised balance sheets will be in the best position to secure recurrent access to the market with the most attractive terms and conditions.
