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Mishcon Academy: Digital Sessions – Brand Resilience: Business recovery post-lockdown

Posted on 27 May 2020

Mishcon Academy: Digital Sessions are a series of online events, videos and podcasts looking at the biggest issues faced by businesses and individuals today.

This live session was held on 21 May 2020. The information in the film is correct at the time of recording.

To review the key insights from the event, please see below.

On 21 May 2020, Head of Brands Sally Britton chaired a digital event, alongside a panel of Mishcon de Reya Partners, to discuss the impact of COVID-19 on brand resilience and the steps that businesses can take to improve their position following the removal of the lockdown. Joining Sally for the session were Nadim Meer, a Partner in our Private Equity team, Laura Chandler, a Partner in our Reorganisations practice, Lewis Cohen, a Partner in our Commercial team, and Daniel Avener, head of MDR Brand Management.

Raising funds through new investors

As the UK emerges from lockdown, Nadim considered whether there is appetite in the private equity community for investment post-COVID-19. Historically, the PE community has tended to make its best returns coming out of a crisis so, while funds are currently frozen, investors will be watching the market for the right time. After this short-term squeeze, investors who, pre-COVID-19, were looking to invest in well-managed, scalable businesses with a strong brand propositions, are likely to return to the market once again.

COVID-19 has, however, changed the landscape for investment and it will be vital for businesses to position themselves in the best way to attract investors. Businesses looking for investors will need to be seen as best in class.

Businesses will also need to be able to offer something more than profit, as investors will be attracted to businesses who have proven themselves to be resilient in times of crisis. COVID-19 has further propelled the investment community's shift towards directing funds to impactful businesses, in part because these are perceived as being more resilient than others.

In considering whether to seek investment, the key consideration at this point is timing. Businesses should assess whether the money is needed now, as those who go to market sooner rather than later, will be limiting their options as many investors bide their time. If businesses are looking to raise funds through investors, Nadim suggested it would be better to look to existing investors.

Raising funds through existing channels

Laura addressed what steps directors and shareholders can consider taking in the current climate to make the most of the funding available from existing shareholders. Laura highlighted that shareholder agreements may already set out terms on which further funding may be made available, or, alternatively, directors may consider offering shares to their existing shareholder base.

Laura also stressed that business leaders may be able to use the current pause in normality to analyse which parts of the business are doing well – could these areas be spun out into a separate entity which could attract investment? Directors and shareholders should also be alive to the possibility that some parts of the business will not be fit for purpose and may be disposed of to free up cash.

Likewise, businesses should not shy away from corporate restructuring – this could range from a large-scale overhaul to basic contractual housekeeping. Taking the time now to assess the detail and plan will help to drive a business forward. Effective restructuring will enhance a brand while at all times ensuring that, to those outside, the brand is unchanged and customers and suppliers continue to deal with an unchanged company. Properly executed, taking these steps in the short term will not damage or dilute the brand, rather, the business will benefit from a medium to long term pay off.

Opportunities

Now, more so than after the 2008 crisis, opportunities for businesses may arise. Daniel highlighted that many of the changes brought about by COVID-19 are in fact only accelerations of changes that businesses, particularly retailers, were already preparing for. The questions businesses were asking themselves – about store numbers, online presence and new product categories - are now more urgent but the answers may, in some cases, be clearer.

Those businesses considering geographic expansion will be aware that opportunities lie in China, Korea and more widely across Asia but should consider whether they have the brand strength to reach outside of the UK. Licensing and franchising present many benefits for businesses looking to grow while protecting a brand and not adding overheads. The key to the success of these models will be in relying on an expert third party who is the perfect fit for that brand, product and territory.

Supply Chain Negotiations  

If they have not done so already, businesses will need to reassess their supply chain in light of COVID-19. Any assessment will need to take into account the specific circumstances and locality of that supply partner. The risks of not addressing any supply chain issues identified should not be ignored.

Lewis gave transparency in businesses and, in particular, supply chains, as an example of an almost certain feature of the post-COVID-19 world. In order to win trust in their brand, businesses are now required to focus on the effect of their behaviours on society and to ensure they remain true to their brand values.

As has been seen in the media, customers and investors will take note of businesses which act insensitively in their treatment of suppliers, but these considerations must be carefully balanced against a business' need for immediate survival. Businesses may also be faced with difficult decisions about dealing with excess stock in a landscape where discounting or destroying stock carry weighty reputational risks. Key to negotiations with any party in the supply chain will be the detail of the contract in place.

Conclusions

Businesses will need to be creative in how they re-emerge in the post-COVID-19 world, and this may involve moving away from a heavy reliance on traditional suppliers in China and Vietnam, and considering whether customers in the UK will be able to replace the gap left by Asian and Middle Eastern customers no longer visiting the UK.

While COVID-19 has undoubtedly changed the business landscape, the fundamentals for brands continue to apply so that businesses should be asking the same questions of themselves as they would when making assessments normally. A marked difference, post-COVID-19, is likely to be the stress placed on brand purpose and the now crucial importance of a brand's digital presence in all aspects of its business.

Sally Britton

Good afternoon everyone, my name is Sally Britton.   I’m a Partner specialising in intellectual property as well as being Head of Brands at Mishcon de Reya.   Today I’m chairing a discussion with some of my colleagues to consider steps that businesses can be taking to ensure they’re in the best possible shape as we emerge from lockdown.   So, joining me on the panel today are three of my Partners.   Nadim Meer from our Private Equity Team; Laura Chandler from our Reorganisations Practice and Lewis Cohen from our Commercial Team.   Also joining us is Daniel Avener, who heads up our non-legal brand advisory business, MDR Brand Management.  As we slowly emerge from lockdown are you seeing any positive signs from private equity investors wanting to engage with brands, and what are some of the key considerations for brands going down this route?

Nadim Meer

The key consideration at the moment in terms of fund-raising is timing and do you really need to do it now? If you do have to go to the market and raise equity finance at the moment, you are going to limit your options because the pool of investors that are prepared to put money to work at the moment is limited.   The first port of call should be if you’ve got them is, is your existing investor base rather than going out to the market.   Key things that you want to make sure you’ve got sorted out before you go to the market is, you know what is unique about your brand and your proposition?  How differentiated are you?  Can the brand of a business scale?  What’s the position of your brand in terms of the broader market and the competitive landscape?  And then how strong is your management team?  So, all those fundamental things are always applied are still there and then finally one, Sally, that’s close to your heart is, have you protected your brand and your IP?

Sally Britton

Has Covid done anything to alter the normal metrics, do you think?

Nadim Meer

One of the key things that we’ve seen is the e-commerce and digital, digital have become a lot more important and business was obviously heading that way anyway.   You’ve got to get your digital presence right.   If it’s you know, social media through to your e-commerce platform through to fulfilment.   That is a requisite for survival and it would be a requisite for getting investment in.   

Sally Britton

What do you think the appetite in the private equity community is for investment post-Covid?

Nadim Meer

Pre-Covid, there was a lot of money available to invest in well-managed scalable businesses with a strong brand proposition.   That fundamentally hasn’t changed and in the medium to long-term, that cash is still going to be there.   If you layer on top of that the fact that the private equity community has tended to make its best returns coming out of a crisis, there will be appetite to invest when the time is right.   So, personally I suspect there is going to be no shortage of investors.   An extra piece you should be starting to think about if you haven’t already is, is purpose.   Can you offer more than simply profit?  And so there’s an opportunity I think in this crisis to take a look at your business.   How can you manage it in a different way?  Because purpose-driven businesses seem to be very en-vogue.   Within the investment community there’s a view that they’re more resilient through crises like this.   

Sally Britton

Despite the support available, cash-flow’s obviously a huge concern for many businesses.   I wondered if, Laura you could talk us through some steps that directors and shareholders might like to consider to improve their cash-flow position in the current climate?

Laura Chandler

I would say, take a really critical look at the business as it stands right now.   Are there aspects that are doing really, really well? Whilst people might not want to invest in the business as a whole, are there certain aspects of it that you could spin out into a separate entity?  Investors would willingly invest in that because they can see an upward trajectory in relation to that aspect of the business.   It’s really time well spent just critically looking at the business.   How it’s doing.   What’s faring well.   What’s faring not so well.   To see whether or not there are changes that could be made within the business and the structure that will help to support it.   

Also, some businesses have really grown organically over time.   So, we have clients whose groups have grown with an acquisition here or an acquisition there and again now is quite a good time if people have a bit more time on their hands to look at those structures and see whether or not they are what they really want them to be and whether or not they’re fit for purpose.   You might have companies that you’re running currently that actually aren’t really doing very much but they are churning up cash and so actually you can look at whether or not you should be dissolving them or winding them up or just getting rid of them altogether.   It’s a good time to take a step back and in evaluating that and putting it in order you will invariably find that there savings to be made and therefore that’s going to improve your cash-flow position.   

Sally Britton

How does the restructuring process impact on the day-to-day operations of a business?

Laura Chandler

It does quite sound quite scary and actually you know often, restructurings can be quite a grand title and of course it can, it can mean enormous group restructurings but also it can just mean changing some contracts or, or changing as I say, winding down a group company that’s sat there for ages and you’ve not really done anything with.   It isn’t as time-consuming as you might think.   As I say, the biggest part is, is thinking about what you want it to look like and being able to sit down with your advisors and saying, ‘This is what I want, please can you help me making this happen?’

Sally Britton

Is it likely to dilute or damage the brand, do you think?

Laura Chandler

I mean, restructuring is very much an internal thing so, to the external business it is a business as usual approach and would still be very much operating under the same brand, under the same IP, Sally.   So that as far as consumers and customers are concerned, the IP stays exactly as it was it’s still operating under exactly the same IP.   So, from a brand perspective, it should have absolutely no impact.   

Sally Britton

So, it does sound like restructuring is definitely something to think about.   If someone was thinking about it, what should they do?

Laura Chandler

Have a look at what you’ve got.   Have a look at what you want to achieve and then have a chat with some advisors who can help you actually implement it.   

Sally Britton

In terms of brand strategy and licensing partnerships and franchise development, what opportunities do you think there are in the market, and how can brands be turning those opportunities actually into actual business?

Daniel Avener

We’re in a unique opportunity where we really have to forensically examine and dissect our current business models and overheads and structures and how the brand is managed.   I mean, retail was on the decline massively before Covid.   The validity of physical store structures and the overheads that come with that.   I think the other question to look at is, based on brand strength and brand equity is can your brand travel?  Some geographies that are already opening up from Covid, China’s open, Korea’s open, the wider Asia region is open and parts of the EU.   Does your brand have resonance from a consumer’s point of view to take it out of the UK, out of lockdown and potentially franchise or licence that into other markets?  And the licensing model really is, is the perfect model when you get into a financial crisis because you’re not adding any extra overhead.   You’re relying on third party expert partnerships and there may even be a more drastic question around is there an opportunity to actually create an entire virtual business model from the brand and really turn things on its head and essentially license or franchise the whole business out?

Sally Britton

Are you seeing particular trends in relation you talked about Asia for example,  sectors or territories in particular?

Daniel Avener

It’s very much around consumables, I mean, we’ve seen a huge spike in food and beverage.   That started off as panic-buying and also in terms of indulgent foods because at times of crisis people like to indulge themselves.   And also, other consumables such as cosmetics and health and beauty products are also trending and skewing quite highly.   And again, it’s product areas that make people feel good, plus those are renewable and re-purchasable product categories.   So, it’s something that you might buy every day, every week.   I think is the essentials and a few treats and consumables are the strongest categories that we’re seeing at the moment.   

Sally Britton

The paralysis of the supply chain has caused huge issues for brands.   We’ve seen order cancellations, we’ve seen surges and the impact has really varied across different sectors of the market.   So, lots of businesses have been struggling.   What do you think businesses should think about in relation to the downstream?

Lewis Cohen

I think they really need to conduct risk assessments of their current suppliers and any potential new suppliers.   Thinking about where they’re located and what’s going on in their specific location and what the prognosis looks for their location.   Are they as a business stable?  Is the country stable?  And of course, crucially, how is their ability to supply been effected?  And then you need to look at, at actually, to the extent you can and you’ve got visibility over it, how long and how dispersed is the supply chain?  And I don’t think businesses can get away now from thinking about how they have behaved in relation to their suppliers.   The Wordsley Corporate Insolvency and Governance Bill which had its first reading through Parliament yesterday, interestingly you know, it may provide some further respite for some businesses that are struggling and also preventing suppliers from stopping supplies due to insolvency where the businesses can actually pay for it or for raising prices in such situations.   

Sally Britton

What types of things should be on businesses agendas?

Lewis Cohen

Businesses need to consider who are their consumers because that may have changed.   The way they find them, the way they shop, will have changed.   Where they’re located and how they engage with them.   All of these things have changed and there’s bound to be changed consumer habits.   We might see shops re-opening soon.   Early signs from China is that whilst footfall is low or is lower, conversion is certainly up.   And I think it’s already been mentioned about, what’s the brand story and has it changed?  Does it need to change in light of Covid?  And that will be tied up in how businesses have behaved.   I think businesses need to be careful we are in a climate where there’s naming and shaming on where consumers are, are, are active.   And I guess thinking about, can you do things differently and get better results?  Reduce your number of skews, reduce exposure to the wholesaler retail, you know, the challenge of course is supply chains are very complex and geographically diversified and I think Covid-19 has brought that into sharp focus and businesses should definitely be looking where they can to potentially reduce that complexity, have better oversight.   

Sally Britton

Do you see this as an opportunity for brands to be a bit more transparent about their supply chains?

Lewis Cohen

It’s not now just about supply chain transparency in terms of whether the goods, what they’re made from, what’s the environmental impact but there’s rightly been a focus on the societal impact of supply chains.   The cancellation of orders by major retailers and the impact that’s had on, on countries like Bangladesh and Cambodia, factories have shut, their income has shut and unlike in the UK, the Government is just not able to and won’t be stepping in so, there is a huge potential cost to retail and a humanitarian crisis to all of this.   We’re seeing public reporting, public naming and shaming of those companies who have cancelled orders so there’s a reputational risk about how people trade going forwards.   It’s easy to, to say that but of course, businesses are also facing incredibly challenging financial times and there’s clearly a very big balance going on here.   So, I think it remains to be seen if we’re going to see a revolution.   

Sally Britton

It seems that purpose you know, that is coming up a lot, more than anything else in terms of the brands that I deal with.   

Daniel Avener

Purpose on a number of levels is, is going to be absolutely critical to win trust.   I think the safer people feel and that can be driven by purpose and trust that’s been built by, by those brands that are offering those sorts of products.   

Nadim Meer

It seems to be anyway that those purpose-driven businesses have been better placed to weather the storm and you know, that, that is attractive to investors and it’s just good business anyway.   

Sally Britton

So, just to close I just want to kind of touch base with each of you and ask you know, what you think the biggest challenge is facing brands over the next three to six months?  And just one piece of advice that they should have in mind as they try and tackle what is quite a significant challenge.   

Laura Chandler

At the moment it’s cash-flow and a lot of businesses are struggling with that.   One piece of advice I suppose linking back to what I’ve just said is, have a look internally at what savings can be made and whether or not there’s anything that you can be doing and whilst you’re trying to steady the ship there could be things that you could be doing to, to ease your own cash-flow.   

Nadim Meer

Make sure you understand your suppliers and what position they’re in and similarly with your customers because things have changed.   The economy’s likely to be slow and sluggish in the UK for, for some time.   Great care needs to be taken I think before any decision is taken.   

Lewis Cohen

Sit down, take your time.  Work out what your purpose is if it isn’t already apparent and then build on that going forward and look to develop that.   

Daniel Avener

Echoing Nadim is really embrace the opportunity for change, be flexible and positive around the future I think if you continue to look at just what’s happening at the end of your nose rather than really setting out a three-year plan, you’re not going to get very far.   So, I think the opportunity starts now but really should be planning out for a three-year plan and be flexible through that process.   

Sally Britton

So, I think that we’re, we’re out of time so I just want to say thanks so much and thanks to all the audience and thanks of course to our panellists and I hope you all enjoy the insight and hopefully the practical advice.   All of our guidance and online content related to Covid-19 is on our hub at mishcon.com/Covid-19 and if you’ve got any follow-up questions, as I said please feel free to contact our dedicated email address which is coronavirus@mishcon.com.   Thanks again.   

The Mishcon Academy Digital Sessions.   To access advice for businesses that is regularly updated, please visit mishcon.com.   

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