It’s been a strange, sad time for the world — and yet, also a period of radical adaptation, learning, reflection and reassessment. That’s not all bad. Historically, pandemics have led to big breaks from the past, and that’s what we seem to be experiencing now. Everything we thought we knew is being questioned. Widespread assumptions, entrenched routines, taking things for granted — whether travel or toilet paper – all that is over. Everything is on the table for reconsideration.
Though we know little about the future, we’re all thinking ahead to what the post-COVID world will look like. We know behaviors have changed quickly – that some will stick, others won’t and much remains to be figured out. Maybe the hoarding of comfort foods won’t last, but mass adoption of home delivery and online shopping seems set to accelerate. Discretionary spending on already weak categories like apparel may just keep weakening. And as far as working from home goes – at least for those fortunate enough to do so – it seems we may have stumbled on to something.
Some have hated working from their kitchen tables, but many others have found it a better way to actually get things done (see Eric’s page on how it has worked for us). Martin Sorrell, chair of digital marketing company S4 Capital, said on a recent call that working from home has boosted productivity and job satisfaction, and the company is already starting to cancel some office leases. Warren Buffett also is a fan and sees the dynamics of office rentals shifting. And last week, The Wall Street Journal reported that commercial landlords are looking at alternatives to the traditional fixed rent, long-term lease — including revenue-sharing agreements. That would have been unimaginable a few months ago.
In other areas, there are big question marks and profound experimentation ahead. What will happen to the university experience if students can’t return to campuses soon? Or what if online learning takes off and disrupts the financial model for universities? What about senior housing? Will we rethink the entire concept? And what about flying? Are we going to get accustomed to a New Normal, as some aviation consultants have suggested, where our luggage gets disinfected, our temperatures are taken, and we pass through multiple security and health checkpoints before we can board? Flying could get awfully expensive. And by the way, so could restaurants, as they accept fewer guests but spend more on protecting employee health and securing food supplies. That could mean the era of wonderfully endless but affordable dining choices as we knew it — Peruvian, Vegan, whatever – is over.
On globalization, the consensus is that it will take a hit, at least in the short term, as nations seek to protect themselves and assert their self-interests. Yet some experts, like Joseph Nye at Harvard, think that over the longer term, nations will find they can’t go it alone because pathogens, computer viruses and a host of other worries require shared controls and treaties. Still, global trade is likely to stay weak as companies and nations seek to secure supply chains within their borders. As an example, the U.S. government wants to bring more semiconductor manufacturing back from Asia to within U.S. borders. And speaking of government, big government does look like it’s back. It turns out government is needed in crises to keep us healthy and safe.
Corporations too are building resiliency and redundancy. Just-in-time inventory and hyper cost-efficiency don’t seem as important as securing supply chains. That will mean lower margins and profitability ahead – and a challenge for stock investors.
And yet investor enthusiasm seems high – maybe a little too high. It’s been high sport to scan the landscape for big changes, and there’s been a tremendous amount of herding and jostling into what seem to be the winning disruption themes — cloud computing, telemedicine, digital collaboration, ecommerce, streaming content. That is all well and good, but the first-order, simple work of dumping travel stocks in favor of computing seems played out. The hard trick now is to look where everyone else isn’t. That will mean some old-fashioned digging for good balance sheets and pricing power in all sectors.