What Stays and What Goes in a Post-Covid-19 World -- Heard on the Street
By Aaron Back, Jinjoo Lee and Dan Gallagher
This is the third column in a five-part Heard on the Street
series on how the American economy might look once the Covid-19
pandemic is over.
The coronavirus pandemic has transformed the way Americans eat,
shop and entertain themselves. In one manner or another, most of
these consumer activities have moved into the home and online.
Now, with effective vaccines on the horizon, the most important
question for investors is how much never goes back to the way it
used to be. The answers will have major implications for swaths of
the economy, but they aren't likely to be straightforward. Each
affected industry has its own nuances to consider.
In cases where consumers have merely adopted a workaround that
is inferior to the real thing, activity should snap back strongly.
Happy hours over Zoom, for instance, are no match for an actual
night out. But in other cases consumers may find the new way of
doing things superior, such as having groceries delivered instead
of venturing into a supermarket.
For still other pursuits, like fitness and movies, in-person and
at-home options have in fact been in competition for decades, with
strong use cases for both. Note, for instance, that more than 1.2
billion domestic movie tickets were sold last year -- about the
same as five years before despite the growing onslaught of
streaming services. And, according to box-office tracking service
the Numbers, average ticket prices actually rose by 12% in that
For these sectors, the bigger question might be who survives to
meet that demand when it eventually comes back. Several gym chains
such as 24-Hour Fitness and Gold's Gym have filed for bankruptcy
protection, as have more specialized offerings such as Cyc Fitness,
Flywheel Sports and YogaWorks. Among theater chains, AMC
Entertainment says it will need to raise additional capital to
ensure it can survive until the summer of 2021, which is when
Hollywood intends to get many of its delayed blockbusters back into
Some habits learned during the pandemic are likely to prove
sticky. Many Americans have been forced to learn to cook, and those
who were already handy in the kitchen have grown more so. This has
been a boon for food companies like General Mills, Campbell Soup
Purchases of equipment for food preparation, cooking and storage
rose 41% between March 15 and Oct. 31 compared with the same period
a year earlier, according to consumer research firm NPD. Sales of
metal bakeware, toaster ovens and air fryers surged 57%, 75% and
83%, respectively. Of course there is no guarantee this equipment
will continue to be used, as anyone with a seldom-touched bread
machine taking up counter space can attest. But it seems a fair bet
that a good portion of these investments, and the kitchen skills
acquired, will keep at-home food consumption higher than it
otherwise would have been.
Among retailers, big-box players Walmart, Target and Costco have
been among the biggest winners from the pandemic. That is both
because they have the scale to invest in e-commerce and because
shoppers have preferred to visit as few places as possible to pick
up their essentials. Walmart, for example, saw general merchandise
sales in the U.S. grow more than 10% in the six months ended July
31 -- a much faster pace than the 1% growth it managed a year
earlier. In some ways, these mass merchants are starting to look
more like department stores: Target plans to bring Levi's products
across more stores and will start opening cosmetics retailer Ulta
Beauty shops inside some of its stores next year.
Department stores themselves, however, seem increasingly unable
to figure out just what their value proposition is to consumers. In
the quarter ended Oct. 31, Macy's and Kohl's saw sales decline from
a year earlier by 23% and 13%, respectively. By contrast,
discounters TJX Cos., owner of T.J. Maxx, and Ross Stores only saw
sales tick down by 3.2% and 2.4%, despite the fact that they have
very little in the way of e-commerce offerings. If the appeal of
the "treasure hunt" experience in these stores endures during a
pandemic, it will surely resonate afterward as well, especially if
the economic backdrop remains weak.
Finally, some categories of bricks-and-mortar retail now face
serious online competition for the first time. Furniture, for
example, used to be a category that consumers overwhelmingly
preferred to see in person. But shoppers have now broken through
that mental barrier: Wayfair saw sales increase more than 75% in
the six months ended Sept. 30. Similarly, online sales of used cars
have taken off, allowing two upstarts -- Shift Technologies and
Vroom -- to make public debuts and pushing incumbents such as
CarMax to move online more quickly. Retailers in sectors like these
can no longer ignore the e-commerce threat.
With any luck, Americans by next summer will be crowding bars
and movie theaters once again. But for many merchants, there will
be no way to put the pandemic genie back in the bottle. Things will
never be quite the same again.
Write to Aaron Back at email@example.com, Jinjoo Lee at
firstname.lastname@example.org and Dan Gallagher at email@example.com
(END) Dow Jones Newswires
November 23, 2020 05:44 ET (10:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.