Non-essentials and COVID-19

Part
01
of one
Part
01

Non-essentials and COVID-19

In an insecure market with increased unemployment, people are shying away from spending on non-essential goods online, though the amount of online purchasing has increased dramatically (specifically since early March when the European travel ban was announced). Smaller e-commerce companies are reluctant to advertise, as they are worried about their ability to deliver products effectively in the current climate.

Non-Essentials E-Commerce Spend

  • Sales are expected to continue growing, but with that growth rate slowing significantly, for e-commerce D2C start-up brands like Warby Parker and Allbirds. These brands have built up loyal customers, but with increased unemployment, their sales are expected to increase by 24% through this year, down from 33% last year.
  • EMarketer analyst Oscar Orozco said that for these companies, sales will shift over from nice-to-have products to must-have products. Supply and delivery chain disruptions will also impact D2Cs. Direct-to-consumer brands in retail altogether make up about 2.6% of the U.S. e-commerce market, compared to Amazon, which is expected to take up 60% this year. D2Cs are responding to the situation with unusually high levels of discounts, and with personal messages to their customers.
  • E-commerce sales rose by 25% from March 13 to 15, compared with the first 11 days of the month.
  • While e-commerce order volume has increased significantly (by 108% year-over-year), the average order value has actually decreased by 31%. That suggests that shoppers are buying impulsively or buying a few items only as they deal with anxiety that those items could run out. Quick turn around shopping, as it's called, happens when people fear they will miss their chance to get something. Tamara Gaffney, VP of Decision Strategy at Quantum described the phenomenon as being similar to November Christmas shopping.
  • Meanwhile, Amazon has had to delay delivery of its non-essential goods so that it can prioritize high-demand products and medical supplies. Some Prime products have been delayed by up to a month. It is likely other e-commerce operations are experiencing similar such delays, with 20% of shoppers in early March already saying their delivery had been delayed or canceled.
  • Sellers of non-essential goods who use Amazon as their distributor have seen their sales drop by 40 to 60%. Some 42% of those retailers cite concerns about consumer confidence.
  • In the US, sales for the last week of March compared to the same time in 2019 were down for cosmetics (-4.8%), but up for alcohol (by 39.6%). Domestic beer was up by 33.2%, while imported beer was up by 27.5%, and spirits by 62.8%. Wine sales were up by 45.5%. Frozen pizza saw a serious increase of 140.2%. Ice cream was also one of the biggest increases, at 44.7%.
  • People have shifted over slightly to pickup sales for CPG online orders, though 73% of these are still home shipments, 19% are pickups, and the remaining are deliveries.

How Luxury, Clothing, and Lifestyle Segments Are Fairing

  • Clothing, luxury, and retail stores are closing their physical locations, either voluntarily or as a response to government orders. For example, sales at Burberry, which has closed 40% of its stores globally, are down 40 to 50% since 24 January. Stores are hoping that e-commerce will be their saving grace. Supply chains though are dependent on manufacturing in other countries. Italy has shut down luxury manufacturing, and some $100 million worth of orders were canceled from Bangladesh alone during a week in mid-March.
  • Online retail spend in the US and Canada increased towards the end of March, then steadied in the first few days of April.
Above: The evolution of the order value of e-commerce non-essentials (dark blue).

Advertising During COVID-19

Impact of Increased E-sales on Advertising

  • E-Commerce sites have responded to the increase in sales by doubling ad spend in less than a month, from $4.8 million for the week of February 17 to $9.6 million for the week of March 9.
  • As a result of this, and in the context of the pandemic, GoodFirms surveyed over 100 of the top e-commerce experts to work out the most effective tactics for small-scale online shops. The respondents chose among four choices: content marketing, PPC ads, email marketing and social media marketing. Some 82% said pay-per-click (PPC) ads attract consistent traffic for e-commerce. About 76% voted for content marketing, and digital marketing came in third. Then, 46.62% cited email marketing as highly effective.
  • At the same time, e-commerce brands, concerned about possible supply chain issues as a result of contingency measures, may limit advertising if they don't think they can guarantee delivery of their products

Advertising Tone Shift Due to the Pandemic

  • There has been a serious shift in messaging amid the pandemic. Consumers are receptive to advertising at the moment, but they want to see compassion rather than cash grabs.
  • For example, Ikea is urging consumers to embrace their homes, Hershey’s chocolate is asking them to spread love from a distance, and Hotels.com’s Captain Obvious is "stating the obvious: Just stay home." Guinness got a positive reaction from consumers (with 7 in 10 beer drinkers having increased purchase intent) after its ad with a strong message about canceling celebrations for safety reasons. “Don’t worry, we’ll march again,” the voice over says to footage of a parade.
  • “Marketing pretense and fabrication will be sniffed out in seconds,” Jason Bagley, an executive creative director at ad agency Wieden+Kennedy Portland, said. “But if brands know who they are, then all they have to do is respond authentically and courageously to whatever is currently happening, and it will connect. That’s a brand’s best insurance.”
  • Some 64% of consumers want brands to communicate their values through their messaging, according to the Kantar COVID-19 barometer report.

Ad Spend Changes — Channels

  • Spending on digital ads is down 33%, and spending on traditional media is down 39% when compared to what companies had expected to fork out.
  • However, with people spending more time at home, they are also spending more time watching television and using the Internet, and advertising companies have taken note. Commercial shooting has also shut down, making digital advertising a more viable option.
  • Desktop video and display auction volume has increased by 7.3%, and there has been a 2.5% lift in mobile video, accompanied by much more activity in the gaming category.

Consumer Concerns

  • The Ad Council (which specializes in public service advertising — the predominant messaging type at the moment) has been studying the consumer state of mind, so that it can be taken into account. Over the past week, Americans felt more informed and hopeful, and less worried. Specifically, 43% felt hopeful and 33% relaxed. However, a similar third also felt anxious and tired.
  • Some 28% of Americans know someone who had or has COVID-19.
  • People's main worries are, in order, the economy (65%), healthcare workers (64%), people not taking the pandemic seriously (60%) and the health of family or friends (46%).
  • Some 81% of people say they have been economically impacted by COVID-19 in some way. Parents report needing much more help than adults without kids. These parents, who are also much more worried than other adults, are turning to social media to discuss educational activities for the kids. Twitter and blogs are the main platforms they are using for this.
  • Young people are the most drastically financially impacted and they are also the most worried age group. Around a third of people aged 18-30 reported a seriously financial impact. This group says they really need peace of mind. Lower income people also have great needs and worries than other classes. They report needing peace of mind and masks, as well as financial assistance and help with food and housing. Lower-income Americans are also significantly more tired, lonely and depressed.

The Impact on Social Media

  • On a global scale, engagement with social media advertising is down, and this has been matched with a decrease in CPM (cost per thousand). The average global CPM in mid-March was $0.81, down from $1.88 in late November 2019. Likewise, the cost per click (CPC) was down to $0.089 in mid-March, significantly below its previous 2020 low of $0.11 in early January.
  • Last month Twitter had banned ads which mentioned “coronavirus” or “COVID-19”, but this month has reversed that ban, but is only allowing such ads in certain cases. Those are changes to business practices as a result of the pandemic, and support for customers and employees in relation to COVID-19- It sees other advertising as an exploitation of the pandemic and going against the public good. Specifically, it wants to discourage advertising that is distasteful, sensationalist, or that incites panic, or that is for inflated prices.
  • Facebook and Instagram posts that have been most popular were about companies doing specific things to help with the pandemic. Among posts related to coronavirus over February and March, the one that got the most interactions on both platforms came from Brazilian brewery Ambev, "which announced that it would use its production lines to make 500,000 bottles of hand sanitizer for local hospitals and the cities hit the hardest by COVID-19. "
Sources
Sources