IF Webinar chaired by Harry Corbett
On April 21 2020, Harry Corbett chaired the first in a new series of Intelligence Forums video conference webinars. Over thirty members joined together across the country from the comfort of their own homes, to listen and pose questions to our two speakers.
The first, Kat McGettigan, joined Grayling, a diverse public relations agency which specialises in government affairs and consumer brands, in 2018. Formerly UK Head of Consumer PR, she is now Head of Grayling Manchester, leads the company's Northern network, and is a Grayling UK board member. She has 15 years of communications agency experience, and has worked for some of the world’s most recognised brands including Visa, Marks and Spencer and Hilton Hotels. She spent last year with Grayling HK, where Huawei was among her clients.
Originally from the north-west Kat sees this as a particularly interesting time to build a team in Manchester to speak with authority on trends outside the M25, and to extend Grayling’s UK influence beyond London. She outlined the need for the government to build faith in this part of the country, post Brexit and post-election, and noted that it was the Labour mayors, Andy Burnham in Greater Manchester, and Steve Rotheram, the metro mayor for Liverpool City Region, who had to a certain extent taken up the mantle of opposition to the government while a new Labour Party leader was being elected.
Business focus over the first few weeks of the COVID-19 crisis has been on
· Moving rapidly towards doing business on-line,
· Making remote living work,
· Finding ways to adapt “bricks and mortar” businesses in order to survive.
Businesses that can have largely adapted to the lockdown phase, and although government is keeping its cards close to its chest on the exit strategy, they now want to start planning for the next stage.
Kat sees brand resilience as fundamental to success in the recovery phase. Brands which have performed well during the lockdown will survive and thrive post crisis. Others, the “villains” which have put profit before purpose, may not. For example, she believes that Wetherspoon’s knee-jerk reaction in laying off many staff before the chancellor announced the financial support package for businesses, has been so damaging that Tim Martin might even have had his “Gerald Ratner” moment. Likewise, Mike Ashley did not endear himself to consumers, when he had to issue a public apology after his spat with the government about trying to keep his Sports Direct chain open when non-essential businesses were ordered to close. Neither does tax exile Richard Branson’s plea from Necker Island for state aid to support Virgin Atlantic, of which he and his family own 51%, sit well with the public.
Even before the outbreak of COVID, there was a trend away from Corporate Social Responsibility towards Social Purpose, and this has accelerated during the crisis. Consumers, Kat says, are no longer making decisions based solely on product selection or price; they’re assessing what a brand says to them, what it does and what it stands for. They’re supporting companies whose brand purpose aligns with their beliefs…..and rejecting those that don’t.
In the current environment companies such as the Coop, which holds its principles (economic, social, and cultural needs and aspirations) as more important than profit, align closely with the public mood. The actions of others such as Burberrys, which has retooled its trench coat factory to make non-surgical masks and gowns for NHS patients, and leveraged its supply chain to get fast track delivery of surgical masks to the NHS care workers, have captured the public mood. And it hasn’t stopped there. Burberrys has also made donations to food banks and maintained base pay for all employees who are unable to fulfil their roles because of store or site closures, without relying on government support for jobs, while senior leaders have taken a voluntary 20% pay cut.
Supermarkets, she said, have generally managed well during the crisis, and have been transparent with their customers where there have been challenges. They have put the safety of their staff, the welfare of the elderly and vulnerable and care workers, ahead of others and have won widespread public support in doing so. Kat noted that their employees are now at the heart of supermarket advertising, talking to us directly from their own front line. This very real and direct “human led” communication of the brand values, has resulted in celebrity brand ambassadors becoming irrelevant.
“Innovate to survive” has never been truer than during this lockdown. Businesses have had to make themselves relevant and accessible during the crisis. Pubs, restaurants and cafes have turned online to offer takeaway food deliveries. Some have leveraged their supply chains to put together food boxes for home delivery. DIY business B&Q has found a way to serve “click and collect” customers during the lockdown while respecting social distancing.
Greater Manchester’s Night Time Economy (GMNTE) encompasses all economic activity - clubs, bars, restaurants, live music and cultural venues- that takes place between 1800 and 0600, has been floored by the lockdown. The response? “United we stream”, established by GMNTE’s Adviser, which is bringing together and broadcasting Manchester’s culture through free online streaming of live music, virtual festivals and DJ’s, and inviting users to donate to charitable causes.
Will things return to where they were pre-crisis? “There won't suddenly be a back to normal moment…” Kat said “….It’s hard to think that we will even go back to the pre-COVID normality”.
In the communications world, “tone” is now more important than “polish” and employees and companies which have been fast and generous in their community support during the crisis have really connected with people. While not all altruism will survive into the Brave New World, Kat can't see how some of this social collaboration will not be taken forward.
Brands have been judged on their behaviour over the past six weeks. Whether there will be forgiveness of the brand “villains” remains to be seen, but those whose actions have supported the community’s needs will be resilient.
Our second speaker was Melissa Davies, Chief Economist and Partner at Redburn, one of the leading independent equity research and execution firms for institutional investors in the UK and Europe. With offices in London, New York, Paris and Madrid, its capabilities span equity research, sales, access and execution. Melissa is currently starting her own consultancy in Cheshire, while working part time for Redburn.
It is no exaggeration, she said, that what has happened to the economy is unprecedented, reminding us that there have been four significant shocks:
Lockdown in China
Collapse in the oil price
Lockdown of 4 .5 billion people worldwide
Shock to the financial markets and the dollar liquidity squeeze
The Office for Budget Responsibility (OBR) predicts a decline in UK gross domestic product (GDP) of 35% in Q2, with an overall 13% year on year decline. The OBR also forecasts that UK unemployment could increase to 10%, or more than 2m. The IMF projects global GDP to contract by around 3% in 2020, with UK output dropping by a more optimistic 6.5%. Melissa sees UK GDP recovering to 90-95% of the pre-lockdown levels by the middle of 2021. Differing views, but then economists are known to have predicted at least nine of the last five recessions!
Forecasting, she said is particularly perilous in the present situation because people’s behaviours are hard to predict as the crisis unfolds. The route out of lockdown will be phased, but we don’t yet know how, and it is likely that people will be cautious in resuming pre-COVID behaviours. Indeed there may not actually be a return to the pre-COVID “normal”.
Employment, she believes, is unlikely to recover to pre-lockdown levels, and a lot of people will roll straight from furlough into unemployment. Many of the jobs that have been lost were not “high quality”, and she believes that unemployment could reach double-digit percentages - possibly as high as 20%.
On the Government’s response, she highlighted that the take up of the state supported loans to business has been slow, because the banks which administer the loans have to underwrite 20% of the risk. This requires then to go through their credit approval process which takes time. She contrasted the UK’s 80% state guarantee with Germany’s 100%, and noted that the US has a different scheme altogether which permits 100% of loans taken out to pay employees, to be subsequently written off.
She contrasted the hitherto elusive forest of “magic money trees” which has now sprouted, with the last decade of austerity, fiscal prudence and a balanced budget et cetera. The willingness of Central banks to buy debt is now high. None will be pleased with a significant increase in unemployment, so they will facilitate money “printing” to fund the cost of COVID. However, she believes that there is a need for less orthodox levers to be pulled. For example, if everyone had a digital account at the central bank, money could be given directly to households which would be infused directly into the economy.
But wont printing money simply create inflation? Not necessarily, she said, because we are currently in a deflationary environment, with no particular shortages of labour or raw materials which would fuel inflation. Well, not just yet, perhaps?
Are we in for another period of austerity when it’s all over? Melissa doesn’t believe that the government will say that “deficits don't matter”, however, more austerity would be political suicide. She noted that Richie Sunak has implied that taxes will rise and a move to more re-distributive taxes such as wealth taxes and property taxes is likely. And if the recovery is lacklustre more money will have to be spent, and the government will have policy decisions to make as to how to invest it. An opportunity to invest in “greening the economy” perhaps, or additional bold infrastructure projects?
From a personal investment perspective, she pointed at real estate, equities, and gold. True, there has been some seizing up in the number of property transactions, but the additional liquidity being created will ultimately support asset prices. In short she does not expect a collapse in wealth. Doubtless something that the chancellor has spotted as well, which may predicate challenges for those who are real estate rich, but cash poor.