TCE 21.13: Interesting themes from 2021, indicators for 2022

Four areas are keeping me interested as one year ends and another is about to begin.

Hello everyone. It’s an end of year return for The Commercial Experience after a bit of a hiatus. It wasn’t a planned hiatus, it was more a combination of a lack of time caused by lots of work and a bit of masters study thrown in over the top.

As the year winds up I find myself reflecting on themes that I’ve found interesting and important this year. It’s tempting with reflection and prediction to assume there’s a big line that stands between what has happened in one year, and what will occur in the next.

What I’ve found is most of these big themes evolve over many years, and when I think about the main areas I’ve found personally interesting they also seem like themes that will continue to be meaningful in 2022.

So what had me interested in 2021, and what is keeping me interested about how they will evolve in 2022.

Knowing your worth.

I wrote this piece for Mumbrella in May as it became clear that there was an emerging challenge for employers in both finding and holding their best talent.

Part of it was due to a lack of available imported talent, but a large reason was some 2020 hastily made financial decisions coming back with interest.

I don’t have official data to support this, but my gut tells me the organisation’s grappling with retention issues in 2021 and into 2022 are the same businesses which quickly reached for the lever of cutting salaries 15-20%, cutting staff, mandating vacation time. It is very hard to cut someone’s salary at that level, at a time they’re already distressed, and then begrudge the same person choosing to leave when someone else offers them the chance to earn an extra 20%. The emergence of COVID and the job market contracting meant the risk attached to cutting salaries was minimal. I mean, surely the workers should be *grateful* they even got to keep their job … right? Even if it meant them living on 20% less for most of the year, seeing friends who lost their jobs struggle to find new ones, burning their vacation time at a period they really needed it. (yes, reading this now it’s absurd to think this belief is held by some)

The Great Resignation is really more about people understanding their worth and seeking out an organisation that share the same perception of their value, and a commitment to developing them. Which is incredible both for employers and employees. It pushes employers to deliver more and it makes employees confident they deserve more.

Expect this to continue in 2022. Border openings will allow some influx of international talent, but the same openings will also enable people to leave Australia and see opportunity in larger international markets. The big question for any manager or organisation will need to be “would my staff recommend working here to their close friends?”

The continued emergence of online retail

Looking back on the domestic online retail data, it’s surprising to see the sluggish pace of chance between the start of 2015 and the start of 2020. In Feb 2020 non-food online sales sat at around $1.4m per month. For the end of 2021 they’re likely to be closer to $3.5m.

In 2022 monthly online sales for non-food goods will likely sit around $3.5b per month, and should crack $4-4.5b for the big months like November and December. This means in just 36 months, online sales will have basically trebled in their contribution to consumer product businesses in Australia.

Big focus areas in 2022 will undoubtedly revolve around supply chain and delivery times. The rules of online commerce are predicated around choice (the concept of the endless aisle) and speed. For marketing the continued focus will be balancing investment to fulfill demand, and to generate demand and brand preference. Adore Beauty and Mecca are strong examples of businesses that do both well.

The continued emergence of packaged up content as a consumer product will continue. Keep it Cleaner is an example of this, a product that competes across a wide spectrum of incumbents … from health and fitness clubs, to weight loss and wellness subscription products, even food and meal delivery. Strategically it has numerous options that are credible in terms of modelling future growth. This space is exciting as it can bend and shape categories and markets.

Netflix data demonstrates the rules of on-demand programming

Netflix publishing viewing data has been interesting as it’s provided a window into how content functions on the platform, and likely how content functions on other similar platforms. Basically - it’s a good way of looking at the data behind what works, what doesn’t work, and the concentration of hits.

Looking at global data for the top 950 titles based on total minutes viewed we see the classic ‘long tail’/pareto distribution. (anyone remember that book?). Squid Game was a mega hit - so much so it accounted for 11% of the top 950 titles minutes. Money Heist accounted for 5%. ‘You’ was next and it accounted for 4%

What it shows for Netflix is hits are important for many reasons. They drive new acquisition but they really engage existing users. And movies and hit series are key as they can delivered 2 to 10 hours of user engagement from the investment. The economics of this mean Netflix can take more risks than traditional broadcasters as the upside is so massive. ‘Squid Game’ success can basically fund 100 misses of the same investment scale.

The other interesting point around the global data is how quickly shows refresh. TV is based on a belief that a show can sustain for 10-15 weeks, and then repeat for 3-10 years. That is why we see the same shows repeated every year. SVOD isn’t based on this - the majority of shows exit the top 10 within 2 weeks, and 90% have churned out by week 5.

My feeling is Netflix would know within 24 hours how a show is going to perform to a fair level of accuracy, and it would be the same for Spotify with music and podcasts. The challenge in 2022 will be looking to grow that engagement at a level above the cost base.

One thing we don’t know is how engagement is distributed across the user base. Is it like a pareto curve and there’s a small chunk of super users that generate the majority of engagement, with a high number of lower volume users? Or is it like a bell curve distribution where there’s a big chunk of moderate users, and smaller edges of super low and super high users? My gut tells me its a bell curve for a mass product like Netflix or Stan. I’d say for the BVOD platforms it’s more like a pareto curve. But I could be wrong.

The Australian TV industry publishes their engagement data too - here, in the VPM ratings. I view this as the areas Netflix/Stan/Amazon would be looking to find programming titles and genres they can migrate over. Reality and drama provide the highest engagement volumes.

We went backwards on consumer confidence in 2021

There’s no way I would have thought this time last year that our consumer confidence right now in December of 2021 would be lower than it was then. But here we are.

The Roy Morgan/ANZ consumer confidence index slowly rose to April of 2021, but then came crashing down in the months that followed. It’s been slowly rising as vaccination levels have increased, but as we stand now it’s just above 100 and had dropped even before Omicron became a concern.

Where we stand now is vaccination levels above 90% in our 2 largest cities, low unemployment, high household savings, majority of borders open to travel, a buoyant property market and low interest rates. At the same time, the share market has been flat since late July and people still seem uncertain about what the future will bring.

It’s hard to know where this lethargy around confidence will impact businesses, but there are some signs worth analysing. My view is lower value discretionary retail will continue to be relatively robust. Think cafes, restaurants, fashion, beauty, mall based retail type outlets. Online commerce for the same areas will keep growing. These are items that don’t break the bank but provide a high level of enjoyment.

Where people seem concerned is around the future and the balance of ‘good’ and ‘bad’ times. This area is heavily influenced by outbreaks and is the area that has dragged down consumer confidence over the past 12 months. People anticipate they will be overall better off in the next year, but they seem concerned that journey will be a bumpy one. And a way to negate the bumps is to keep a reserve. Which will mean bigger purchases - cars, refurbishments, higher value household appliances, large holidays - may be delayed until consumers feel some level of extended stability.

This data from the ABS via Trading Economics shows that for September 2021, the household savings ratio was at 19.8. And you can see pre pandemic, a normal household savings ratio was anything from 5-8.

I personally felt we would return to a higher more sustained level of confidence from December onwards, but I hadn’t considered the unwelcome guest that is Omicron. With numbers back up and a lack of clarity around how the population is likely to react (when vaccination levels are so high and a booster programming is rolling out), closely observing the bearish nature of the economy will remain important.

That’s it for me for 2021. Thanks for reading, emailing and commenting. I’ll be back in 2022, albeit infrequently and whenever there’s something I find interesting to think about. Hopefully these emails have managed to hold your interest for least a few minutes this year.

Have a great break!