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An overdue recession comes into focus
Months ago, the novelty of the COVID-19 pandemic felt new and strange: sheltering in place, working from home, ordering in. Months later, though, the novelty has worn off, and many of these things have come to constitute a new normal.
Whoever said they wanted to relive the ‘20s should have been more specific.
In business, too, tactics that were announced as temporary, or in response to a one-time event, are beginning to take on a different appearance as the economy’s recovery, or lack thereof, begins to take shape. Three major themes are emerging:
Temporary is becoming permanent: At Twitter, that means remote working. At Amazon, that means temp hires. At many retail brands, that means temporary store closures might become permanent, as firms take advantage of the pandemic to thin out their massive retail footprints.
Consumer spending has dropped: McKinsey has been tracking global consumer spending across an array of product categories, and while there has been some recovery since the beginning of the pandemic, respondents plan to spend less than usual across most categories, save for grocery and household supplies.
Layoffs are looming in all parts of economy: A recent survey of small business owners that received PPP loans showed that 22% planned to layoff workers once the program ended. The figure was up from last month, when just 14% of respondents were mulling job cuts. In the public sector, state and local government budget shortfalls could portend further job losses. Even large firms are announcing layoffs, an admission that the long hoped for “V” shaped recovery is unlikely to materialize: Levi’s will cut 15% of its corporate workforce; rumors are swirling that Wells Fargo could layoff somewhere in the tens of thousands; and among airlines, reliant on the CARES Act and its compulsory protection for payrolls, United Airlines warns that it may layoff up to 36,000 when that program expires.
As with all things related to COVID-19 and 2020 in general, things can change very quickly. But right now, it appears that an overdue recession is coming into focus.
In the next issue of Stratagem, we’ll highlight recession strategies to help you and your firms reevaluate, restructure, and respond to these changing market conditions.
Word on the Street
Microsoft announced that it would be closing its entire physical retail footprint, at a write off of $450 million. The news wasn’t terribly surprising. The Personal Computing segment’s growth is slowing relative to its Cloud and Enterprise segments. The famous “Get a Mac” ads of the late aughts wryly lampooned the differences between PC and Mac end-customers, but they’re also a prescient cultural artifact that accurately predicted how both firms would develop in the 2010s: Microsoft tightened its grip on the enterprise segment, while Mac rolled out more lifestyle devices and software.
Digiday has an interesting look at how strategic whiplash at upstart business publication Quartz left it in the “mushy middle.”
Vogue Business has a behind the scenes tale of how Revlon flubbed the launch of its Fenty Beauty competitor, Flesh Beauty: misalignment between the brand’s inclusive messaging and actual hiring practices, ineffective pricing and marketing strategies, and a distribution model that felt out of step in an age of Instagram-fueled direct-to-consumer selling.
Lululemon will buy fitness start-up Mirror, maker of a seriously impressive piece of at-home fitness equipment that streams workouts into users’ homes. The move will allow the apparel retailer to compete with the likes of Peloton, and increase their stickiness with current customers and fitness-minded prospects.
The pace of retail bankruptcies is accelerating. Brooks Brothers, Muji, Sur La Table, Ann Taylor owner Ascena, Lucky Brand, and GNC have all filed in the last month. Other names are waiting in the wings. Francesca’s, New York & Co. owner RTW Retailwinds Inc., Men’s Warehouse owner Tailored Brands, Stein Mart, and J. Jill have all given warning signs that a bankruptcy filing might be in their future.
$GPS - The Gap, Inc.
Shares of The Gap, Inc. experienced a rare pop recently when the retailer announced its new collaboration with Kanye West. But the headlines were less sanguine.
“Can Kanye West save the Gap?”
“Can [a deal with Kanye West] save Gap from bankruptcy?”
And those were the headlines before the Telfar controversy hit.
Observers quickly asked how Gap’s Kanye deal would impact another designer collaboration announced earlier this year with Telfar Clemens, creator of the “Bushwick Birkin.” Social media was aroar amid rumors that the Gap was reluctant to pay Clemens for partial work, compounding recent liquidity warnings including cancelled orders from factories and failure to make rent payments. The firm’s failure to spin off its Old Navy business, as long promised, was also viewed as a signal that there were viability issues afloat.
But such warning signs have been flashing bright red for a very long time. Folks have been asking “What went wrong?” at the Gap since at least 2006:
“The biggest problem for Gap stores is that the chain now occupies the murky middle, even in the parent company’s own portfolio. And in the age of mass luxury and two Americas shopping, the middle market is nowhere. People who really need to scrimp on clothes spending will go to Old Navy, or H&M, or Wal-Mart. And those who can afford to spend more will go to Banana Republic, or Barneys, or Nordstrom.”
Perhaps the only thing more tired than the Gap itself are all of the pre-mortems being written about its impending demise. Will its deal with Kanye West materially move the needle, or is it the proverbial rearranging of chairs on the deck of the Titanic?
She Said It Best
There's no way in hell that Yeezy customer has shopped [at Gap] in the last 20 years and there's no way in hell they're going to shop there now… At first I thought it was a joke. This to me is lipstick on a pig for Gap after years and years of missteps. I don't think this resonates with that Gap consumer. This is some kind of weirdo last-ditch effort.
— Kristin Bentz, president of KB Advisory Group, when asked by Retail Drive for her thoughts about the Gap’s Kanye West collaboration.
That’s all for now.
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