Over the course of the last week, I’ve spoken with individuals across many different sectors to gain a sense of what’s happening in the marketplace and economy.
This includes individuals in the retail, restaurant, and tech sectors, as well as people in the commercial real estate and investment community.
As a small business owner and investor, I realize that my future success is dependent on my ability to look beyond this short-term crisis. COVID-19 will end, and even with a recession, the markets will eventually bounce back.
Every business—from the small corner store to Amazon—needs to understand the paradigm shifts in order to make smart decisions moving forward.
Walmart was started in 1945 by Sam Walton. By 1950, his business was only doing $250,000 in revenue. Remember that a single fledgling shop can grow all the way to the largest retailer in the world. The same can be said of McDonald’s, Amazon, Microsoft, and many, many more. All these companies started out as a small, one-person operation. They grew to multi-billion and even trillion-dollar valuations, not by luck, but by enterprising entrepreneurs who understood how to grow their business, and then, how to capitalize on the changing economic and world forces and trends.
Amazon understood the migration toward online.
Microsoft understood the world of desktop.
McDonald’s understood fastfood.
Ford understood the end of the horse and buggy.
These entrepreneurs were all pioneers in their field who were able to capitalize on the changes in the market, consumer demands, and so on.
COVID-19 will present an equally cataclysmic existential change for every business owner. In order to strategically grow your business, you need to understand not just how to increase sales, but, how to move your business in the direction of where the market is headed.
COVID-19 will change how we operate, and it will impact every business sector. COVID-19 will undoubtedly change people’s buying patterns well beyond the end of the virus itself.
What are some of those changes, and how can you shift your business and investing to use them to your advantage?
The Coming Paradigm Shift
Teleworking, Telelearning and its impact on retail, transportation and real estate
I was speaking with a professor from a large Canadian University last week, and he mentioned that their university has managed to accomplish from a technological perspective in the last 10 days what would have normally taken months—and maybe even years—to accomplish. They managed to move courses and exams online at an amazing speed out of necessity.
In the same vein, I’ve spoken with a number of business owners who at one time resisted remote working but have now embraced the technology. They’re also realizing that their staff can be as productive—and maybe even more so—than when they were in the office.
Once this crisis is over, although most people will head back to the office, many businesses and institutions will continue to maintain a remote workforce. A recent study found that 3.4% of US workers completely work from home—a number that was already increasing prior to the crisis.
I suspect we’ll see a large jump in the percentage of remote workers, which will have very positive effects for companies that enable this technology. On the flip side, we will have an oversupply of office space, less congestion on the roads, less travel, and a change in the retail landscape with fewer people frequenting stores and restaurants near office space.
In addition, COVID-19 will have lasting effects on people’s buying behavior. A percentage of people will now realize how convenient it is to buy groceries, clothes, and everything else online will continue with the practice afterward. This will be net positive for companies like Amazon, Google, and Alibaba, and a net negative for companies like Simon Property Group (SPG), America’s largest class-A real estate owner.
Although SPG has significant cash on their balance sheet and can weather this storm, the structural headwinds that many of their tenants will face will present challenges from a retail perspective.
Many of these trends started well before the virus, but the speed of transition has now changed that trajectory.
Some industries like airlines, cruises, hotels, and the ancillary businesses that service those industries will potentially suffer long-term post-crisis. But, not all businesses and industries are suffering now. To give you an idea, the following companies have recently announced that they’re hiring:
- Walmart plans to hire 150,000 workers
- Pepsi – 15,000 additional workers
- Papa John’s Pizza – 20,000 additional workers
- CVS- 50,000 additional workers
- Dollar General – 143,000 additional workers
- Pizza Hut – 30,000 additional workers
- Oreo – 1,000 additional workers
So What Does Tomorrow Hold?
What appears today as a temporary pandemic may persist into a more prolonged economic contraction, necessitating some changes to your small business, strategy, and investment decisions. What worked yesterday most likely won’t work tomorrow.
Our governments are now in the midst of throwing countless dollars into some businesses and industries that will likely suffer permanent and irreversible structural changes. Many of these businesses will never recover, not because they’re poorly run, but rather because the winds of change are simply too strong.
I am reevaluating some of my investment decisions that appeared sound a few months ago– SPG and Ford are examples—but will likely be permanently impacted unless they make significant changes to their business models.
In the meantime, here are some thoughts as provided by a friend, Mike Abramsky, and I am sharing with Mike’s permission:
Recovery of Face to face selling will be slow and perhaps permanently changed
– Increased transition across the board to online and virtual selling — remote demos will become king, channel shifts towards indirect and online — even for bigger ticket items (more acceptable to buy this way)
– New approaches/strategies/metrics to customer engagement and social selling online and over web will become popular
Hard goods will be slow to recover
– large purchases (250K+) may recover more slowly as financial concerns and cash conservation habits develop and linger through 2021
– lower monthly costs/commitments in contracts and increased contract flexibility may become the new normal
Buying Shift to Vendors with Products/Bus Models Aligned To New Realities
– Solutions that help their customers also transition to these realities with THEIR customers (eg remote engagement, support, sales, etc) will take market share
– Companies that offer or transition current software solutions to more remote implementation & maintenance – those approaches will be more favored
– Will result in bus models with lower sales and marketing costs/investments but higher R&D
The world will be a different place. It’s time to think of how these changes will impact your investment decisions and your business. Don’t wait until it’s too late—make these changes now before the market forces will make them for you.