Covid-19: The tectonic shifts behind the virus

March 14, 2020

The coronavirus outbreak has begun to affect private and business life around the world. The number of confirmed cases is growing exponentially, more people are forced to stay quarantined and therefore mostly at home. As a consequence, consumers are increasingly avoiding public places, sales of physical retail is falling and stock markets are plunging. For now, these are only the first problems, the real scale of the consequences will depend on how long the epidemic and the panic around it lasts. Maybe we are facing the beginning of the biggest financial crisis in the XXI century.

China is the "world factory", producing key components for many industrial and high-tech goods. Supply chains that have not been destroyed by the US-China trade war will suffer from the suspension of international trade amid an unprecedented quarantine. Unfortunately, as the disease has now been declared a global pandemic, we have to realize it may be with us for a while, perhaps even years. If so, there might be  also a lasting impact on consumer behavior and businesses.

Industries that lose the most due to coronavirus

Tourism & hospitality. Due to an outbreak of the virus, airlines, hoteliers, restaurateurs and tour operators all around the world are taking massive hits. Flybe in the UK ceased operations, Cathay Pacific and Hongkong Airlines are on the brink of going out of business. And we're far from the peak of this pandemic. In the 1st quarter of 2019 Chinese tourists spent $127.5 billion overseas, according to a report released by the State Administration of Foreign Exchange, per capita more than any other group. Popular tourist sites such as the Louvre have been closed down and empty street are now seen in many capitals. Countries all around the world are cancelling flights and closing their borders. The US suspended all trips form Europe. Airlines are forced to flying empty ghost planes to hold their allotment of flight slots, the question is only for how long can they keep on doing that.

Retail. As more and more countries are affected by the virus WHO declared COVID-19 a pandemic. Italy is closing all shops with the exception of supermarkets and pharmacies. And similar measures are discussed in neighboring countries. The number of buyers in shopping centers has significantly decreased. The constant flow of news about COVID-19 keeps us glued to screens to look at the latest numbers in awe and fear. The general economic decline and lower consumer spending in arts, foods and entertainment may also play a role in the negative, fearful sentiment.

Our B2B sales at sokke.ch are decreasing in the past 7-14 days. Also we do have massive impacts on the manufacturing process, which causes stock issues..."

Luca Istrice, CEO of relate commerce GmbH

Grocery stores and wholesales will not necessarily suffer, they might even have the most profitable year for the last 10 years due to people stocking up supplies of canned goods, hand sanitizers and toilet paper. However there is a danger that supply chains will be heavily interrupted and we face empty shelves of some products.

Luxury goods. China accounts for about a third of luxury goods consumption. Jewelry maker SWAROVSKI has already reported an unprecedented drop in demand. Luca Franchini, Global Commercial Development Manager at SWAROVSKI, shared his opinion on the situation:

- When the outbreak started in China, we had to shutter our stores and we’ve been hit as foot traffic dwindles in almost every country. Fears about the spread of coronavirus has kept many people away from the high streets during the past weeks so it can be a tendency that will last for the coming weeks too. However online sales are increasing in almost every region, showing that every marketer need to be alert to an expedited shift to online sales.

How long will the extraordinary situation last?

- It’s difficult to predict anything at this point but surely the virus could spread panic and impact consumer behavior.

Will consumer changed behavior (i.e. shift to contactless payment solutions and more mobile/online shopping) swing back to how it was before the outbreak?

- Permanent change in purchase behavior is not guaranteed but for sure there is a big psychological component: people just begin to pull back on their willingness to be out there and spending. It’s crucial for companies to prioritize always the customers’ needs and willingness and adjust strategies and investments based on moods and expectations of consumers.

Automotive. IHS Markit estimates that car manufacturers will lose 350,000 units in the first quarter and more than 1.7 million units if quarantine continues until mid-March.

Hyundai, the world's fifth-largest car manufacturer, reported the decrees of sales on 13% comparing with the last year and has suspended production lines at its plants in South Korea due to a shortage of Chinese spare parts. Tesla has warned about delays in the supply of Model 3, which is being assembled in Shanghai. Similar difficulties were reported by Toyota, General Motors and Volkswagen.

High-tech and gadgets. Apple has closed all its retail stores and corporate offices located in China and now is shutting down the stores in Italy. Foxconn, one of Apple's key suppliers, reported its biggest monthly drop in revenue in about seven years. Samsung is temporarily moving some smartphone productions to Vietnam from South Korea and asks Vietnam not to quarantine 700 engineers from virus-hit to avoid further loss. Google, Microsoft and Amazon have also closed their offices in the country.

Bottomline

It's only beginning of the pandemic, there is a high probability that the whole situation will get even worsen. Small businesses might get out of game failing to retain the customers, stocks will lose value, and many people might stay without jobs. It's definitely the time to reconsider your business and marketing strategies focusing on new cunsumers' needs.

If this global pandemic persists, there's a good chance consumer behavior will change for good; those who felt forced to shopping on their mobile phones during the crisis might later stick to the newly discovered comfort. Delivering on the consumers'needs remains as important as ever. The changed situation creates opportunities for companies that adapt faster to deliver on the changed customer behavior. As the situation is unprecedented it reshuffles the balance of power and we believe some new and unexpected winners will emerge.

Stay healthy,
GeoCTRL

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