The world’s biggest companies are set to lose up to €1tn in brand value as a result of the Coronavirus outbreak, with the aviation sector being the most affected, according to the latest analysis by Brand Finance, the world’s leading independent brand valuation consultancy. The 2003 SARS outbreak, which infected over 8,000 people and killed 774, cost the global economy an estimated €50 billion. As of 18th March 2020, there have been 218,663 cases and 8,943 deaths of COVID-19 confirmed worldwide. Global spread has been rapid, with 146 countries now having reported at least one case[KJ-BF1] .
Brand Finance has assessed the impact of the COVID-19 outbreak based on the effect of the outbreak on enterprise value, as at 18 March 2020[KJ-BF2] , compared to what it was on 1st January 2020. Based on this impact on enterprise value, Brand Finance estimated the likely impact on brand value for each sector. Each sector has been classified into 3 categories based on the severity of enterprise value loss observed for the sector in the period between 1st January 2020 and 18th March 2020[KJ-BF3] .
David Haigh, CEO of Brand Finance, commented:
"The COVID-19 pandemic is now a major global health threat and its impact on global markets is very real. Worldwide, brands across every sector need to brace themselves for the Coronavirus to massively affect their business activities, supply chain and revenues in a way that eclipses the 2003 SARS outbreak. The effects will be felt well into 2021.
“However It is not all doom and gloom. Some brands will fare better under COVID-19: Amazon, Netflix, WhatsApp, Skype, BBC and BUPA are all booming.”
Europe’s top 100 brands
Brand Finance today released the Europe 100 report on the continent’s top 100 most valuable and strongest brands. With a current combined value of €1,163,937m, all the top 100 European brands are estimated to drop 13% in value following the impact of COVID-19.
The report was set to be launched this week at the continent’s preeminent gathering of the creative industries, Advertising Week Europe, which has been postponed due to the Coronavirus outbreak.
On 1st January 2020, European brand value growth was slower than in previous years, at 5% (up to €1,135bn). The trade war last year and worries about the global economy weighed down on growth for the big exporters – particularly cars, which saw slower growth than previous years. German automobile excellence is to be commended as the top 10 brands in Europe are dominated by German autos Mercedes (up 13% to €58bn), BMW (up 5% to €37bn), VW (up 13% to €40bn), and Porsche (up 21% to €31bn).
Although Europe has seen faltering growth, the automobile industry has recently been going from strength to strength. The industry makes up almost 20% of overall brand value and has grown 10% this year (relative to overall growth of 5%). It is one of the key industries that Europe leads in as its brands have successfully innovated in the face of many new challenges and opportunities.
For the third consecutive year, Mercedes-Benz is the most valuable automobile brand in the world. The German brand has been investing strongly in R&D and has been one step ahead in the anticipation of new trends – particularly electric and autonomous vehicles.
Despite their strength, Mercedes and its parent company Daimler are already being affected by the virus. Daimler has stopped all manufacturing and demand is drying up. If social and economic restrictions are lifted within the next few months, purchases might only be delayed and the long-term impact small but longer-term delays could produce a long-term shock to a sector already challenged by disruption, trade wars and slowing demand in China.
Elizabeth Petra, Director at Advertising Week Europe, said:
“In this report, there are a wide variety of brands that have become household names around Europe. Many of these companies are business giants that have been established on the global stage over generations, whilst others have grown quickly in recent decades in response to changing consumer needs. All of these brands have been built through hard work and creativity over many years, putting themselves in a strong position to consolidate their place and lead the way through uncertain times.”
Aviation worst impacted by Coronavirus
Assessed as the hardest hit sector are airlines, leisure and tourism, aviation, aerospace and defence. The global airline industry has called for up to €200bn in emergency support and Boeing called for €60bn in assistance for aerospace manufacturers. The International Air Transport Association (IATA) has said most carriers will run out of money within two months as a result of the closure of borders for arrivals as governments order a shutdown to contain the coronavirus outbreak. A large number of major airlines have grounded most of their fleets and announced plans to lay off thousands of staff as they now confront a crisis unlike anything ever seen before in the airline industry.
As per Brand Finance analysis from the start of the year, Airbus had risen by 15% (to €13bn) and Safran 7% (to €6bn) as rising defence budgets and increasing demands from airlines helped grow their business. Our new analysis suggests that all of this growth will be reversed.
Luxury losses during pandemic
Luxury apparel brands are strong performers in the Brand Finance Europe 100 – all of the large luxury apparel brands have risen in value this year. Gucci, Louis Vuitton, Lancôme and Chanel all achieved significant brand value growth despite the slowing demand in China and a generally weakening growth last year.
However, the luxury industry, is also classified as high impact, is feeling immediate effects from COVID-19 outbreak, as highest spend on luxury comes from China, where the outbreak began in Wuhan province in December 2019. As the health epidemic takes its toll on the high street and forces shops to shut, the impetus for luxury purchases will be the first to fall.
David Haigh, CEO of Brand Finance said:
“The harsh reality is that many brands are not going to make their 2020 targets due to the unprecedented challenges of the Coronavirus outbreak. It is hoped that lenders will be forthcoming in offering additional flexibility and liquidity.”
Global sporting and sponsorship effects
Major worldwide events in the sporting calendar have been postponed or cancelled, with organisers taking difficult decisions to pause all Premier League football, set a new date for the London Marathon, cancel the Bahrain Grand Prix, suspend the NBA season, postpone all PGA Tour golfing meets, Six Nations rugby fixtures and the Tokyo Olympic Games also in jeopardy.
These measures have a knock-on effect not only on the huge amounts of spectators, sporting enthusiasts, athletes and coaching community but also on the sponsorship, retailers, merchandise market, viewership figures and contractual agreements on advertising and promotional activities around such high-profile sports fixtures.
Work from home revolution
Brands offering in-home or remote working solutions have observed an immediate uptick in demand, as workforces across the world are dispatched to work remotely. Zoom, which facilitates virtual meetings, is inundated with signups as the Coronavirus outbreak has prompted office closures and meeting cancellations. Business seminars, university courses and even children’s playgroups have all moved online as people worldwide adopt the reality of social distancing, self-isolation or quarantine.
Food delivery apps Deliveroo and UberEats, now offering contact-free delivery options whereby a food delivery is conveniently left on your doorstep so as not to encourage contact between customer and delivery driver, have also seen a huge surge in demand for their services.
Media and film industry feel effects
Film production and promotion schedules have been affected by the outbreak, with Disney pushing back the release of its remake of Mulan as well as The New Mutants, part of the X-Men franchise. Hollywood is also feeling the effects of the Coronavirus pandemic as the 25th Bond Film, No Time To Die, has postponed its official premiere and release until 25 November. The box office will be hit hard as a knock-on effect from the closure of cinemas around the world.
The effects of social distancing may mean more viewers are home watching TV or streaming online, however Netflix has announced its decision to suspend production on all scripted series and films in the US and Canada. As massive televised sports events and festivals such as Glastonbury and Coachella are cancelled, music and TV executives will be feeling the strain of providing fresh and watchable content.
Note to Editors
Every year, Brand Finance values 5,000 of the world’s biggest brands. Brand value is understood as the net economic benefit that a brand owner would achieve by licensing the brand in the open market. Brand strength is the efficacy of a brand’s performance on intangible measures relative to its competitors.
Data compiled for the Brand Finance rankings and reports are provided for the benefit of the media and are not to be used for any commercial or technical purpose without written permission from Brand Finance.
Brand Finance has assessed the impact of the COVID-19 outbreak based on the effect of the outbreak on Enterprise Value, as at 18/03/2020 compared to what it was on 1st January 2020. Based on this impact on Business Value, Brand Finance estimated the likely impact on Brand Value for each sector. Each sector has been classified into 3 categories based on the severity of Business Value loss observed for the sector in the period between 1st Jan 2020 and 18th March 2020.
Communications Director, Brand Finance
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About Brand Finance
Brand Finance is the world’s leading independent brand valuation consultancy, with offices in over 20 countries. Brand Finance bridges the gap between marketing and finance by quantifying the financial value of brands.
Brand Finance helped craft the internationally recognised standard on Brand Valuation – ISO 10668, and the recently approved standard on Brand Evaluation – ISO 20671.
Brand Finance is a chartered accountancy firm regulated by the Institute of Chartered Accountants in England and Wales (ICAEW), and also the first brand valuation consultancy to join the International Valuation Standards Council (IVSC).
Brand Finance’s brand value rankings have been certified by the Marketing Accountability Standards Board (MASB) through the Marketing Metric Audit Protocol (MMAP), the formal process for validating the relationship between marketing measurement and financial performance.
Definition of Brand
Brand Finance helped to craft the internationally recognised standard on Brand Valuation – ISO 10668. It defines a brand as a marketing-related intangible asset including, but not limited to, names, terms, signs, symbols, logos, and designs, intended to identify goods, services or entities, creating distinctive images and associations in the minds of stakeholders, thereby generating economic benefits.
Brand strength is the efficacy of a brand’s performance on intangible measures, relative to its competitors. In order to determine the strength of a brand, we look at Marketing Investment, Stakeholder Equity, and the impact of those on Business Performance.
Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the brand value calculation. Based on the score, each brand is assigned a corresponding rating up to AAA+ in a format similar to a credit rating.
Brand Valuation Approach
Brand Finance calculates the values of the brands in its league tables using the Royalty Relief approach – a brand valuation method compliant with the industry standards set in ISO 10668. It involves estimating the likely future revenues that are attributable to a brand by calculating a royalty rate that would be charged for its use, to arrive at a ‘brand value’ understood as a net economic benefit that a brand owner would achieve by licensing the brand in the open market.
The steps in this process are as follows:
1 Calculate brand strength using a balanced scorecard of metrics assessing Marketing Investment, Stakeholder Equity and Business Performance. Brand strength is expressed as a Brand Strength Index (BSI) score on a scale of 0 to 100.
2 Determine royalty range for each industry, reflecting the importance of brand to purchasing decisions. In luxury, the maximum percentage is high, in extractive industry, where goods are often commoditised, it is lower. This is done by reviewing comparable licensing agreements sourced from Brand Finance’s extensive database.
3 Calculate royalty rate. The BSI score is applied to the royalty range to arrive at a royalty rate. For example, if the royalty range in a sector is 0-5% and a brand has a BSI score of 80 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4%.
4 Determine brand-specific revenues by estimating a proportion of parent company revenues attributable to a brand.
5 Determine forecast revenues using a function of historic revenues, equity analyst forecasts, and economic growth rates.
6 Apply the royalty rate to the forecast revenues to derive brand revenues.
7 Brand revenues are discounted post-tax to a net present value which equals the brand value.
© Brand Finance 2020