By David Coombs
Like pessimistic prophecies that 9/11 would presage the end of air travel, there are some fantastical predictions surrounding the coronavirus pandemic, not least the demise of collective working at company premises.
The long-term effects of Covid-19 on consumer behaviour and companies’ profitability will be more nuanced than these more extreme predictions would have us believe, but we can expect significant lasting change.
Many trends took root prior to the outbreak, which has acted as a powerful catalyst to their growth. What would have otherwise happened over the course of two or three years has taken place over a few months.
While these changes pose a huge threat to firms – some will disappear – they also bring myriad opportunities for businesses and investors who are forward-thinking and flexible in their approach. Based on this, I see four key Covid trends shaping the investment landscape of tomorrow:
1. More remote working.
Covid will undoubtedly lead to a rise in flexible contracts but the scope and uptake of these will be more pronounced for some employers and employees than others. I am likely to continue to work from home more often than not – and have hugely reaped the rewards of removing a four-hour commute from my working day.
Many people will want to continue working from home but to what extent?
Predictions have swung widely from a 20 per cent to an 80% drop in office working – the former seems more likely to my mind. Regardless of how good video conferencing tools are, getting people together will remain important – for strategy or innovation meetings at growing businesses, or developing relationships with new or existing clients, for example.
Technology companies will continue to benefit from more remote working to the detriment of train operators and energy companies. Businesses will adapt – Pret a Manger might be more likely to come to Giffnock than George Square.
2. More e-commerce
E-commerce has seen a significant uptick since Covid. The lower cost of developing an online store front thanks to technological innovation from the likes of Adobe and Shopify pave the way for smaller, more niche companies to sell luxury goods and services to a wider audience, whether a bottle of fine wine from a boutique off-licence or takeaway from an upmarket restaurant.
We are also likely to see more big brands increasingly selling directly to consumers
–Diageo distributing Johnnie Walker without Sainsbury’s, Unilever selling Marmite without Tesco and Nike retailing athleisure without
JD Sports, for example?
For now, sales are priced in line with third-party retailers, but should manufacturers start to offer wholesale pricing to consumers who buy directly this trend could accelerate sharply. What would this mean for discount retailers?
3. Shake-up in healthcare
People have become accustomed to consulting with a doctor remotely and receiving an arm’s length diagnosis. We can expect that to continue.
Moreover, a radical shake-up of healthcare was needed before Covid and is ever more pressing now. The pandemic has shone a light on the spiralling cost of healthcare. Social care and obesity are growing burdens on the public purse.
Diabetes is a big issue, not just in the western world but also in Asia. There is a huge regulatory and consumer threat to companies on the wrong side of that – those that manufacture unhealthy foods, for example – and a big opportunity for those developing solutions, from health and fitness providers to biotech companies focused on reducing the cost of treatments.
4. More emphasis on social concerns
Covid has shone a light on how companies treat people in a crisis, for better or for worse. Increasingly, people will look to support those companies, through a loyalty premium, that treat all stakeholders equally – shareholders, customers, employees and society.
Reports linking fast fashion e-tailer Boohoo to a factory in Leicester allegedly paying below the minimum wage and not observing social distancing ravaged its share price and underlines the growing importance of social factors.
Consumers are going to be much more thoughtful about how goods are sourced and whether anyone has been exploited. So Covid has not started new trends, just accelerated the existing ones.
David Coombs is head of multi-asset investments at Rathbones.
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