State of the Industry & The Impact of COVID-19
What happened? Thomas Friedman explained the concept of exponential in relation to the COVID-19 crisis by stating, “It is one of the hardest things for the human mind to grasp...the brain can’t appreciate how quickly 5,000 cases of confirmed coronavirus infection in America can explode into one million.” The events characterized consumer base will be, in the words of Jim Collins, “built to last.” In 2017, AFCI published a size of the industry report that had valued the crafting industry at 36 billion dollars. The report outlined the spend percentages per craft, where consumers spend, and the frequency of craft activities within the US. While the report is a couple of years old, much of the data presented was great news. Aging boomers are also seen as a source for some revenue growth in the next 5 years according to IBIS. These indicators of future success have not changed; in fact, I would argue that due to recessionary conditions and social distancing measures crafting has never been more popular. We hear this from several members who have had a tough time keeping product on their “shelves”, and anecdotally I see this firsthand at home where my wife has started painting again and my kids are building dioramas (not assigned by their school).
The positive dimension of exponentials, or Moore’s law, is the pace at which we see the world adapting and innovating within a public health crisis. Moore’s Law, named after famed Intel founder Gordon Moore, was borne out of the observation that the number of transistors in a dense integrated circuit double about every 18 months. I have often considered this as the speed and capacity for innovation within several industries, and not just the semiconductor industry. While there will invariably be businesses that close for good, I am confident that those businesses within the creative industries that adapt, evolve, and make necessary changes will survive. IBIS, a global industry research firm, in its 2019 industry reports valued the Hobby and Fabric Crafts at 20 billion and 4 billion respectively. There is little doubt that there are many end consumers that are passionate about crafting and will continue to do so for years to come. The data show that as in the previous five-year period, millennials are expected to generate the majority of revenue for craft stores moving forward. Generationally speaking, millennials, or generation DIY, show that they have placed a high value on creativity and collaboration which you can argue is at the heart of the craft industry. The spirit of collaboration has certainly fueled mobile platforms like Etsy and Pinterest over the last several years.
Phoenix Rising?
Prior to COVID-19, we knew that the landscape was changing significantly for brick-and-mortar retailers. Some called it the “Amazon effect” and others have more ominously dubbed it the “retail apocalypse.” On their 2010 album the Suburbs, Arcade Fire, to some degree, presciently described “dead shopping malls that rise like mountains beyond mountains.” This is of course poetic hyperbole but the precipitous decline of shopping malls has been a constant. A further decline has no doubt been hastened by the current crisis. Just looking at trend lines of the last decade, we have seen the shuttering of many shopping malls and big-box stores, which have been largely supplanted by the rise of online retailers. As many brick and-mortar stores have gone out of business, e-commerce channels and mass merchandisers have absorbed much of the increased demand for industry craft products. Many of these companies are able to offer low prices at one-stop-shop convenience. This could not be more true as I write this today.
So, what is the future for the independent retailer and more specifically for the retailer who sells arts and craft products in this environment? Many know that in 2020 and 2021, the number of retail stores will be reduced further and that a few of the larger companies will continue to teeter on the brink of insolvency or are already there. Alternatively, many still predict a bright future for independent retailers especially for those selling products that require touch and feel like craft and hobby stores. Joel Goldstein of the Forbes Business Development Council wrote that “as digital and in-store experiences begin to blur into one another, opportunities are still abundant for retailers to be forward-thinking with their operations.” He goes on to say that retailers must leverage the digital landscape in order to be fully be connected with their customers. He emphasizes how online engagement complements informing “consumers at the local level.” Retailers need to think strategically in mapping customer journeys and influence through experiences and stories rather than a bulleted list of features.
The Papier-mâché Elephant in the Room
It is difficult to discuss industry insights with the vagaries of the looming public health crisis in the US and other parts of the world. We continue to hear news about the spread of COVID-19 around the globe which creates a tremendous amount of uncertainty in the financial markets, not to mention the devastating impact it has had on the health of many people. Many of AFCI’s members and the broader community are likely to be impacted by the virus, but it remains to be seen the full extent of how the virus will impact day to day lives over the next 1- 2 years. It is certain that due to social distancing interventions and disrupted supply chains we will see an impact on the business of the creative industries as well as a slew of other businesses. The publication Retail Dive in a recent article excerpted comments from a set of discussions with retail executives. Most of those CEOs mentioned were fairly cagey about their own supply chain disruptions but remarked upon the continued high level of uncertainty around Chinese suppliers.
With regard to retail, many experts say that there will likely be a significant uptick in eCommerce and online sales as consumers moved the bulk of their purchasing to online but no retailer (online or brick and mortar or a hybrid) is immune to the supply issues that will surface throughout this year. IHL Group predicted last month that there will be a significant increase in investment in eCommerce technologies, where “trends to optimize click and collect and delivery will double their previous investment” as so many people are homebound whether out of fear or mandate.
Looking Ahead
With the ever-shifting commerce landscape comes new challenges for craft industry professionals. Both the growing push to go digital and large-scale health crises will no doubt continue to impact the way we do business for many months. However, just as craft-based business owners find new ways to create each day, there exists the promise that they will adapt to whatever changes may come. Disruption can be incredibly painful for some and creates an exponential number of opportunities for others to innovate. In many cases the steps businesses take now — and the opportunities they find amid the turmoil — will determine their rate of recovery when we are on the other side of this. As a friend of mine told me not too long ago, in the middle of the night, make plans for the sunrise.