Up to US$1 trillion estimated brand value loss from COVID-19 globally
The brand value of the world’s 500 biggest companies, according to the Brand Finance Global 500 2020, is set to potentially lose up to an estimated US$1 trillion as a result of the Coronavirus outbreak, with the apparel sector being one of the most affected.
Brand Finance has assessed the impact of COVID-19 based on the effect of the outbreak on enterprise value, 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. The industries have been classified into three categories – limited impact (0% brand value loss), moderate impact (up to 10% brand value loss) and heavy 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.
Our COVID-19 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 as a result of the pandemic.
Despite the havoc that COVID-19 is undoubtedly going to wreak on the sector in the coming year, agile brands are likely to fare much better than their inflexible counterparts. With new consumer behaviour habits likely to be borne out of the pandemic, brands will look towards greater innovation in their e-commerce businesses and the potential reassessment of their store business models.
As with most sectors, however, the damage that will ensue on apparel brands will greatly depend on how long this pandemic engulfs the world.
Richard Haigh, Managing Director, Brand Finance commented:
“The COVID-19 pandemic is undoubtedly going to hit the apparel sector hard – Brand Finance has predicted that apparel brands could face up to a 20% drop in brand value. As these brands negotiate store and factory closures, broken supply chains and a customer base that is facing unprecedented economic uncertainty, they will have to prepare for a tough and turbulent journey ahead.”
Nike strikes again
For the sixth consecutive year Nike has claimed the title of the world’s most valuable apparel brand, recording a 7% increase in brand value to US$34.8 billion, as of 1st January 2020. The sports giant has focused on implementing a pivotal distribution strategy move, drastically reducing the number of retailers selling its products, with the aim of regaining control of the brand customer relationship and improving profit margins.
Nike’s bitter rival and fellow sportswear superpower, Adidas, has seen a less successful year, recording a 1% decrease in brand value to US$16.5 billion.
Both brands, however, have been forced to close stores following the COVID-19 pandemic and thus sales are going to take a damaging hit. Adidas announced that it expects to lose over US$1 billion from sales in the first quarter of 2020 from greater China alone.
Both brands will need to rely heavily on their e-commerce businesses to protect themselves as much as possible. Nike surpassed the US$1 billion milestone in quarterly online sales last year, a feat that not only demonstrates the brand’s sheer dominance in the sector but also puts the brand in a solid position to rise up to the challenge of current worldwide turmoil.
Levi’s is fastest growing
Iconic jean brand 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. 2019 was a solid year for the brand, as it celebrated its highest growth rate in more than 25 years and undertook an extremely successful IPO after trading privately for over 30 years. The brand, which has traditionally relied heavily on its men’s clothing range, now boasts womenswear as the fastest-growing segment of its business – a testament to the brand’s successful diversification strategy.
As one of America’s oldest companies, Levi’s has been focusing on maintaining its relevance against its younger, more modern counterparts, through partnering with music festival Coachella and launching its ‘Use Your Voice’ advertising campaign – empowering the younger generation to spark change.
Valentino and Gap struggle
In contrast Valentino (brand value US$1.4 billion) and Gap (brand value US$1.6 billion) are the two fastest falling brands in the ranking both recording a 39% drop in brand value.
Italian luxury fashion brand, Valentino, has been negotiating slowing revenue and sales over the previous year, particularly in parts of its key Chinese market - which accounts for approximately 30% of the brand’s sales – in the face of civil unrest in Hong Kong and the general slowing Chinese economy.
Similarly, Gap’s fortunes have been less than favourable. With declining sales, the abrupt exit of CEO Art Peck, and the plan to close 230 of its stores on the horizon, the brand is evidently taking measures to attempt to counteract its sharp drop in earnings.
Zara slips down top 10
With a brand value of US$14.6 billion Spanish retailer, Zara, has slipped down the ranks to 6th position following a 21% drop in brand value. Fellow Inditex Group brand Bershka has suffered a similar fate, its brand value dropping 26% to US$1.6 billion.
As with all brands across the sector, Zara and Bershka are negotiating a significant drop in visibility with store closures and consumers staying at home. Online shopping and e-commerce channels are vital to help alleviate some of the economic damage from COVID-19. Zara has implemented an innovative approach to the pandemic, with models photographing and styling new campaigns from their own home rather than the studio.
Despite the challenges facing all of Inditex Group’s brands, there is no doubt that the power of Amancio Ortega, and his ability to face the crisis head on, paired with the brands’ strength internationally, should stand these brands in good stead once stores are re-opened and normality is reestablished.
Rolex retains crown as sector’s strongest
In addition to measuring overall brand value, Brand Finance also evaluates the relative strength of brands, based on factors such as marketing investment, familiarity, loyalty, staff satisfaction, and corporate reputation. Alongside revenue forecasts, brand strength is a crucial driver of brand value. According to these criteria Rolex (down 2% to US$7.9 billion) is the world’s strongest apparel brand with a Brand Strength Index (BSI) score of 89.8 out of 100 and a corresponding elite AAA+ brand strength rating.
The global luxury watch market has been celebrating continuous growth over the previous few years - a result of growing demand amongst millennials and the upsurge in e-commerce channels. Despite the brand only releasing one new model last year, Rolex saw solid sales across the UK and globally.
Rolex, along with other luxury apparel brands, is now having to brace itself for a steep decline in sales as travel restrictions, rapid unemployment and worldwide economic uncertainty ensue following COVID-19. This, paired with broken supply chains and factory closures, certainly marks a tough journey ahead for both Rolex and the luxury apparel sector in general.
Note to Editors
Every year, Brand Finance values 5,000 of the world’s biggest brands. The 50 most valuable apparel brands are included in the Brand Finance Apparel 50 2020 report.
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.
Additional insights, charts, and more information about the methodology, as well as definitions of key terms are available in the Brand Finance Apparel 50 2020 report.
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.
Communications Manager, Brand Finance
T: +44 (0)2073 899 400
M: +44 (0)7939 118 932
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.
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.
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 Brand 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.