21 Structural Implications from the COVID-19 Pandemic

Last week, the Deputy Chief Medical Officer of Australia, Professor Paul Kelly, outlined the public health scenarios of COVID-19. The best case scenario sees a 20 per cent infection rate, 5 million people infected and 50,000 people dead. The worst case sees 60 per cent infection rate, 15 million infecting and 150,000 dead.

This. Changes. Everything.

So, what can we expect? With an exponential rise in infections, things are expected to get worse before they get better. A recession is almost inevitable and unemployment will rise with serious economic consequences for everyone.

This is a life defining moment.

No one knows when or how we will recover. Will it be a L, V or U curve? I suspect that we will see a slow U shaped recovery that will take years to rebuild confidence and balance sheets. What I do know is that there will be serious long-term structural implications:

1.    We are going to have get used to a massive public deficit for the long term as stimulus packages, unemployment benefits, bail-outs and lower tax receipts drive the highest debt levels outside wartime. This will create political division on how to balance the budget over the next decade.

2.    We will see big increases in grants to medical research on transmissible diseases to prevent the risk of future health pandemics. We will realise that science is essential for a sustainable future.

3.    Our government will strengthen our preparedness for future pandemics stockpiling testing kits, masks, ventilators and other personal protective equipment, and build additional capacity into the health system. We will realise that we need to own the capability (not import it) to react to catastrophic events.

4.    Investments will move to more defensive asset classes and we will move into a long term low inflationary, low interest rate and higher unemployment environment. We will have lower expectations on return on investment and will need to rethink and rightsize our lifestyles.

5.    Boardrooms will refocus on personal safety of employees and customers, risk management, business continuity, sustainable cash flow and strengthening balance sheets. Risk appetites will weaken and capital investment will be slow to rebuild. Insolvent trading laws will be reformed for temporary global shocks. For those companies that survive, balance sheets will be so depleted, it will take years to recover and reinvest.

6.    Online retail will explode. We will move from discovering and searching online and then buying in stores, to buying more goods online. Online will move from 16% of non-food sales to over 30%.

7.    We will see shifts in the way pay for goods and services driven by shifts online and the need for less handling. The decline of cash will accelerate and we will pay with frictionless card or mobile based debit and new forms of responsible credit (e.g. Zip).

8.    Chemists, Supermarkets, Streaming Services, Books and DYI categories will grow whilst discretionary categories like Apparel and Furniture will struggle for growth. There will be significant consolidation in discretionary categories resulting in one department store and two discount departments stores left standing.

9.    Home based businesses, promoted on online platforms, will increase out of necessity. We will see a surge in new entrepreneurs working from home.

10. Delivery logistics will surge to support the shift to online purchases with longer delivery times expected.

11. Distributed workforces (working from home) will accelerate new tele and video conferencing, driving our use of data and testing broadband networks. We will learn about flexibility and productivity. Working alone together, will strain the creativity and iteration that comes from close collaboration.

12. Cyber security incidents will rise rapidly with shifts towards working from home, as employees online behaviour are more exposed.

13. With more people working from home, relationships pressures will increase, resulting in higher levels of break ups and divorce.

14. There will be less business travel and more conferences will become pay to view. Aviation, corporate travel and event organisers will see a structural shift downward.

15. Expectations on personal hygiene will rise and hand based greetings will diminish. Usage of hard and liquid soap and hand sanitisers will grow and our access to personal protection equipment will become ubiquitous. 

16. Cleaning costs will rise. Cleaning products and services will have higher penetration, higher usage and higher margins.

17. Home pantries and freezer stock levels will increase with shelf-stable, long-life and frozen foods.

18. We will be cooking more from home and will seek new inspiration and simplicity for meal preparation. Meal kits and food delivery will also see strong growth.

19. Home schooling will become more popular as some parents look to become educators to isolate their children for health reasons.

20. Social distancing and isolation will generate higher levels of anxiety, depression and suicide. Our ability to cope with so much uncertainty and loss will require significant more mental health support services. All businesses will provide greater levels of mental health support for their employees who will be dealing with the biggest crisis of their lifetime.

21. Charities will see higher demand to support families and the vulnerable. We will learn that our need to be social and our ability to collaborate is fundamental to our humanity and this is not to be taken for granted.

This crisis will test our leadership. How we deal with these structural changes will help us create a new future.

Science and love must beat fear.

We will overcome.

John Batistich