Brand Finance has published its annual report on global brands' value, and the outcome is relatively gloomy. It has been estimated that the value loss caused by COVID-19 will be up to US$1 trillion, globally. This is an unexpected and unprecedented situation as the current pandemic has shone a light on how fragile some familiar brands are.
Brand Finance's impact analysis shows that the apparel sector is one of the most heavily impacted industries globally and could face a potential 20% loss in brand value. Brand Finance calculates brands' value following some strict criteria that mostly focus on the ability of brands to lead, adapt and be agile.
The criteria are the following: lead in terms of innovation and products – from design to trends as well as in managing relationships with clients; quickly adapt to diverse business scenarios without substantially impacting the business's structure; and lastly, be agile responding to critical situations with a proactive attitude instead of being caught off guard. In simpler words, brands that have transformed their business model to be in tune with the current lifestyle patterns are more likely to weather this pandemic storm.
Brands have been classified into three categories – limited impact (0% brand value loss) moderate impact (up to 10% brand value loss) and massive impact (up to 20% brand value loss) - based on the severity of enterprise value loss observed for the sector in the period between January 2020 and March 2020.
The core category product of a brand is undoubtedly highly influential in determining the success of a brand, but sometimes the situation is more complicated. Sometimes it's not the product but the way that brands reach out to clients.
A definite winner for the sixth year in a row is Nike, a brand that has taken a higher control on its direct distribution channels mimicking the luxury approach of minimising wholesalers, delivering a much more "on brand" experience as well as improving profits. On the contrary, Nike's rival Adidas has announced that it predicts to lose over $1 billion in Greater China alone, exposing its obsolete model of relying on wholesalers for 85% of its business.
Zara, owned by the Spanish group Inditex, the second largest textile company in the world, has slipped down to sixth place among the top ten brands. What seemed to be Zara's insurmountable strength - no direct advertising but a precise positioning in the mind of a global clientele - has become its Achille heels. The lack of visibility due to store closures in the majority of its 93 markets worldwide, has impacted the brand to its core pushing management to rethink the relationship with its audience, which is now more active online. It will be interesting to monitor how the cancellation of fashion shows, the de facto style office of the brand, will affect the output process of Zara altogether.
Rolex maintains a strong position, according to Brand Finance. The global luxury watch has been buoyant in recent years, attracting the attention of millennials and adapting to the e-commerce model. Rolex aligned with all first luxury watch brands strategy released only one new model last year, maintaining exclusivity and recording robust sales globally. This move boosted the brands' relevance in the luxury industry, positioning Rolex as an iconic investment during uncertain times.
Relevance with a global audience is the key to the success of two major brands like Gucci and Louis Vuitton, both brands retaining their strong position in Brand Finance's chart. Both brands have revolutionised their business to adapt to the fast-changing panorama in the far east. Greater China, despite its pre-virus issues - protest in Hong Kong and a slowing economy - remains the most relevant markets for consumption, vitality and progress. Louis Vuitton and Gucci have regenerated their business as formatted plug-ins that fit into the highly integrated omi-channel Omni-experience approach that China has developed in recent years. Both brands have also put a bet on the fact that the world will shortly follow suit adopting the Chinese model. Covid-19 seems to be accelerating the changes towards that very model. Brands that are not able to adapt will inevitably stay behind. This is the case of Valentino, a brand which has seen its value decrease due to its inability to create appealing investment products sold as experiences for the discerning Chinese market that accounts for 30% of its global revenues.
It is interesting to highlight once more that it is not necessarily the product but the feelings that make or break a brand and its position in Brand Finance's chart. Levi's is the fastest growing brand in this year's ranking, increasing an impressive 38% to US$4.1 billion as of 1st January 2020. Last year was a pivotal year for the brand; becoming public with a successful IPO on the New York Stock Exchange and managing to maintain relevance with younger audiences throughout the globe with successful brand's association - the music festival Coachella and the launch of 'Use Your Voice' advertising campaign. The Gap, on the other end of the spectrum, is selling similar products and boosting the same iconic past, without success. One of the most prominent losers, recording a 39% drop in brand value, The Gap had to face a series of setbacks including the ousting of its CEO at a crucial time and the closure of 230 stores globally putting the brand in a reactive defence mode.
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Source: NOWFASHSION by Fabio Ciquera