COVID and its effects have imposed upon the world a stark set of tests. While it seems unlikely that anyone in the retail sector can reasonably say that they had predicted and had been preparing for such an event, the fallout has shone a light on the strategies and tactics that different brands have implemented in their search for a competitive advantage – and the results are in.
In a world where brands are searching for ways to immunize themselves against future events similar to what we are going through now, while at the same time reacting to the new norms of retail, emerging behaviors and fluid market dynamics, two things are becoming clear. First, putting all your eggs in a domestic basket may not be the best way to diversify risk. And second, the digital direct-to-consumer model is where brand-building and effective marketing work, and where revenue growth with optimized lifetime values will be achieved.
Recently, ESW customers have seen growth that most could have not predicted when we began entering the lockdown period across the globe. With restrictions in place, retail performance has plummeted. Stories abound of how essential goods have boomed online, while apparel and other verticals have suffered. But our Apparel, Sportswear, and Beauty & Cosmetics customers beg to differ…
Like for like order volumes in April grew by more than 77% YoY, and at the time of analysis, May order volumes had accelerated to 109% ahead. In fact, May volumes have now exceeded peak season figures for 2019 (which was already a record-breaking sales period).
We compared the stock market performance of some of the world’s top apparel brands, to see how Wall Street has responded to their performance during the pandemic. It quickly became clear that the street has been rewarding some brands and not others. Why is that?
To try to make some sense of this, we looked at the traffic performance to each of these brand’s sites. Every one of them followed a similar trend – a significant drop when the outbreak hit, with a steady recovery thereafter. Clearly demand (using traffic as a proxy) was not the differentiator.
Time for another hypothesis. How much of the brand’s traffic is being generated domestically vs internationally? We ran the numbers, and suddenly it all began to make sense: diversity drives value.
Plotted on a chart that compares the recovery in the brand’s share price since Feb 12th (right before industry-wide crash) to the amount of traffic generated in the US market, we see a dramatic correlation.
Adding some more brands, including non-US brands, and looking at share of traffic generated in the domestic market, a pattern begins to emerge:
There appears to be a clear correlation between the market’s expectation that each brand is well positioned to recover and the degree to which that brand generates its traffic outside its domestic market. Simply put, the winners are globally diversified, and are doubling down on their Direct to Consumer business model. The brands we partner with have been able to leverage ESW’s ability to keep markets with viable trading conditions open, and match it with agile advertising and inventory strategies that allow them to focus on, and drive demand. Wall Street took notice, and is rewarding them for their foresight.
If you’d like to learn more about tapping into customers beyond your domestic market, just reach out at firstname.lastname@example.org and say hello!