"Everybody has a plan until they get punched in the mouth" – Mike Tyson
COVID-19 has laid a powerful blow to all of our best-laid plans for 2020. The human tragedy is of course the primary distress and never in my lifetime has the importance of the scientific and medical professions been clearer. In this series of thematic articles, I will be taking a look into how the world of business has coped during the outbreak and picking out a few examples of companies that are weathering the storm best in 2020. I will attempt to pick-out the key factors that have allowed these businesses to perform under stress and which I believe will allow them to come out on top in the future.
In a recent interview, Sir Martin Sorrell (the powerful and equally controversial advertising mogul), said that:
‘Now all bets are off because Q2 is going to be a bloodbath … And so now the gloves are off, there's no status quo to upset, there's no applecart to upset, so you might as well get on with it.’
Sorrell went on to argue that now more than ever ‘agility is the key corporate attribute’. I wholeheartedly agree with Sir Martin on this point and it has been fascinating to see how businesses have adapted to COVID-19 conditions. L’Oréal (a Church House holding) have form in leading the way with innovation and they certainly have not let us down in recent months. As the lockdown took hold, the cosmetics giant increased their online budget from 50% of their total marketing spend to over 70%. L’Oréal were already comfortably ahead of their global consumer goods peers in moving online and with features such as virtual try-ons (give ModiFace a go!) and one-on-one beauty consultations via video chat reportedly seeing lots of interest. I am confident that L’Oréal will have extended their lead in ecommerce this year. The combination of innovation that was already underway with a rapid response to challenging conditions has, to paraphrase L’Oréal’s Chief Digital Officer, allowed them to achieve in eight weeks what it would have otherwise taken them three years to do.
Snap Inc (Snapchat) is another example of a business that moved rapidly from the start of lockdown to remain relevant to their customers, accelerating the development of new Snapchat Originals content, such as ‘Will From Home’ (starring Will Smith) and ‘Frontline Heroes’. This has won Snap millions of new subscribers in a fraction of the time that this might usually take. ByteDance (owner of TikTok) goes down as one of the great success stories during lockdown as use of the 15-second video platform has gone through the roof. TikTok is the most downloaded app in America this year and they now have over 800 million monthly active users.
Now compare these nimble and innovative businesses to companies that do not have such flexibility due to factors like high debt, crippling dividend targets or a cash-hungry asset base. Imagine being an oil company that has seen revenues more than halve in Q1 as the oil price fell from $80 to $30 (I have rounded here), but you still have investors that expect to be paid their cash dividend and oil fields that still cost the same to run. Equally, cruise ships and planes that are not allowed to take customers but still need to be maintained or multinational banks with a long heritage in Hong Kong that are surely more concerned with Chinese/Hong Kong politics than innovation during this pandemic. Even if these types of business did want to be proactive in adjusting to the lockdown, their ability to do so is limited by their circumstances.
This covers just a few examples, but I hope my point is clear that businesses that had flexibility going into COVID-19, and leadership that took positive actions to adapt to the crisis, are those that have performed best. These companies have already made great headway on their peers that were slow or unable to react and this advantage will only increase in the months ahead.