A Post-Pandemic Landscape: Business Predictions for 2021

I’m four months into my new job, and I’m finally taking my chunk of paid time off.

Like many people, I’ve been watching the Hallmark Channel (sans Lori Laughlin), doing a whole lot of hiking, and spending the remaining days of 2020 reflecting on my year – the good (a new job, rediscovering my passion for blogging, conducting a research project on influencers) and the not-so-good (everything else about 2020).

And like other business nerds, I’ve been spending a lot of time thinking about the past year and where we are heading as an economy in the “new normal.”  

I think it’s fair to say that our economy changed more in 2020 than at any time since World War II. Some industries – like certain segments of technology, healthcare and consumer goods – had a blockbuster year, taking advantage of increased demand for digital connection. Other industries – such as restaurants, airlines, certain retail, etc. – are pretty much in a depression. And Tesla? I don’t really know what the hell is going on with them.

If 2020 was the year that companies had to radically readjust to a once-in-a-century pandemic, 2021 is the year where companies must prepare to compete in a significantly altered consumer environment, replete with sizable political and economic changes.

So what’s next year going to bring? I’m not Miss Cleo, so I can’t predict with total certainty. But I’ve been doing a lot of reading and reflecting, and I thought I would share my perspective.

Below are my thoughts on what 2021 might bring, broken out by sector/subject:                                                                                                                             

TECHNOLOGY

Antitrust, Antitrust, Antitrust. The three most powerful technology companies on the planet (Google, Amazon and Facebook) aren’t going to be disrupted by some startup in a garage anytime soon. But they might start to feel the heat from our legislators on Capitol Hill.

In addition, a Justice Department under the Biden administration might be more amenable to taking on the large tech giants. While the Trump Administration did go after some of the technology giants, the scrutiny often (but not always) had more to do with the president’s personal vendettas than the merits of concentrated technology power. In Biden’s case, Democrats have historically been more amenable to bringing forward antitrust concerns. 

The stories about anticompetitive behavior keep piling up. Last week, the Wall Street Journal ran a lengthy article (not its first) about how Amazon uses seller data to, allegedly, unfairly build competing products and crush its competition.    

I’m not a lawyer, but the antitrust laws of today feel more applicable to John D. Rockefeller and Standard Oil than to the digital world we are living in today. While the oil and railroad barons clearly eliminated their competition to the detriment of their customers, it’s harder to see how the size of today’s corporate giants hurts the average consumer. At the end of the day, Amazon provides lower prices than many retailers, and can have things at your doorstep often within the hour. Google provides the world’s information at your fingertips, and Facebook is both fun and free for the end user.

But that doesn’t change the fact that they have significant power to demolish competitors, jack up prices on advertisers, and determine what information we have access to. And that power is going to come under the microscope in the coming years.  

While I don’t necessarily see the technology behemoths getting broken up any time soon, I expect that governments, both domestic and foreign, will be stepping up their oversight of these behemoths. We may also see concerted efforts to rewrite antitrust laws that are more in line with today’s digital world. Regardless, expect Zuck to come to D.C., and break out that suit and tie a little more often.

Social media companies will root out disinformation. Amidst all the talk about “Fake News” and “disinformation campaigns,” it’s easy to forget the steps that social media companies have taken to clean up the rot. Twitter announced back in March that it was labeling manipulated media, and later in the year started labeling disinformation from public figures more broadly.

Admittedly, Facebook has done less to stamp out the crazy. However, they have been testing circuit breakers on its platforms to prevent false information from going viral. 

There have been efforts to get Facebook to do more. This summer, a group of large companies announced they were stopping ad buying on Facebook-owned properties to pressure the social media giant to curb the spread of misinformation. The campaign (which ran through July except for some brands which extended the moratorium), while certainly noble in its intent, didn’t seem to have much of an effect on the company’s financial condition – revenue jumped 22% and earnings per share jumped 28%. 

While companies may have concerns about crazy shit spreading like wildfire, the service’s targeting ability is far too irresistible for marketers to pass up. Therefore, I predict governments will serve as the catalyst of change. As part of that, don’t be surprised to see more policies that root out your crazy uncle’s posts.

Venture capital investments will remain strong. Despite the craziness happening this year, venture capital deal volume continued to increase over previous years, as shown in the chart below:

There’s nothing in my research to suggest that the VC market will cool in 2021. But I expect VC dollars to flow towards companies that have flourished during the pandemic and will continue to do so in a post-pandemic world. Expect heavy investments in, among other categories, artificial intelligence, cloud computing, biotechnology, pharmaceuticals, and telehealth.

WORK

We’ll work at home more, but not as often as you think. Bill Gates predicts that, on average, we’ll spend 30% less time in the office. Other people, like real estate tycoon Sam Zell, predict the time we spend in the office will largely return to pre-pandemic levels.

I’m somewhere in between on this — I think the number of days we spend in the office will decline at least 10-15% from pre-pandemic levels. On the one hand, we have data from consulting firm Mercer, which found that 94% of employers found productivity either unchanged or improved since the beginning of the pandemic.

At the same time, Microsoft research has found a 14-percentage point drop in companies that consider themselves innovative with their products and services, as brainstorming and serendipitous conversations are just far harder to come by in a virtual environment. Plus, on an anecdotal level, pretty much all of my friends have indicated that they want to work from the office at least some of the time.

Of course, there will be a spectrum. Some companies will become remote-first. Others will go back to having strict, no-work-from home arrangements. Most will be hybrid, or at least will become highly flexible in work arrangements. This new working arrangement will have profound effects on urban centers, transportation, restaurants and retail, among many other industries.

WeWork will suddenly become cool again. Remember WeWork? Of course you do! They were that wildly overvalued co-working company that lost about 95% of its value and came under fire for its highly questionable business model, not to mention the corporate shopaholic and egotistical CEO (the dude was intent on becoming “president of the world” and “humanity’s first trillionaire.” WTF?!)

While WeWork will never become the Silicon Valley darling it once was, I do believe the demand for its service, and co-working spaces in general, will rise with many companies wanting a collaborative environment without the expensive real estate footprint. And now that WeWork has adults running the ship, it might be in a position to capitalize on this new trend.

Commercial real estate, on the other hand? They’re in a big, perhaps permanent, recession. While I don’t see a mass exodus from office buildings anytime soon, I do see a lot of companies forgoing capital expenditures on new buildings and currently vacant commercial real estate staying on the market a little bit longer. This is truer in the top-tier cities, such as New York, San Francisco and Los Angeles, as companies expand their footprint in lower cost-of-living areas.

HOUSING MARKET

New York/Bay Area prices will continue to fall and/or remain at some level of sanity. Despite the economic hardship that many people are facing, most housing markets are faring relatively well, both in the rental and ownership sectors.

However, prices have been far weaker in New York and San Francisco, and I don’t see that relenting. Let’s break each down. First New York. As the Big Apple became world headquarters for COVID-19, many people packed up and left. And as the weeks have turned into months and will soon turn into years, this will cause lasting damage to the overall ethos of that city.

Bay Area prices have also been falling, but for different reasons. While I predict we will still be *primarily* office-based, Silicon Valley companies have been more lenient in terms of working from anywhere. And some companies are leaving altogether. Two Silicon Valley giants, Oracle and Hewlett-Packard Enterprises, have announced they are moving their headquarters to Texas (although they will maintain a presence in the area). Even Elon Musk has moved to Texas, and said California is like a winning sports team that has become “complacent.”

If I were living in a one-bedroom for $3700 a month and my company told me I could work from anywhere, I’d look for greener pastures. I hear Southern California is slightly cheaper and way warmer.

To be fair, people have talked about how the Valley will become less relevant for decades. Yet with such a strong entrepreneurial track record, access to venture capital, and proximity to research institutions, I don’t expect the Bay Area to completely lose its luster. I just expect the wealth of technology and new venture creation to be spread around *a little* more evenly across the U.S. Cities that may benefit from the outflow include Salt Lake City, Denver, Nashville, Austin and pretty much every place in Texas.

RETAIL

Expect the retail apocalypse to continue in full force. What do J. Crew, Neiman Marcus, JC Penney, Aldo, Tuesday Morning, Guitar Center, Pier 1, GNC, Brooks Brothers, Stein Mart, Lord & Taylor, Tailored Brands (Men’s Wearhouse and Jos A. Bank) and Furniture Factory Outlet have in common? They’re all recognizable brands that went bankrupt in 2020 (cue Wheel of Fortune sound effects).

Each retail failure is unique, but common themes generally emerge. Most of these failures involve high rent payments in malls with declining foot traffic, lackluster digital capabilities, and failing to keep pace with the changing needs of shoppers.

Now, some retailers may experience a temporary bump due to pent-up demand – people going back to the office might need to get new clothes after putting on the quarantine 15. But if you’re a retailer that doesn’t have a strong omnichannel experience (or incredibly cheap prices like TJMaxx), you’re pretty much toast. Save what cash you have left and get a bankruptcy lawyer.

TRAVEL

Either Q3 or Q4 will see nearly record revenue, at least in the U.S. What? That seems a little bit contrarian, don’t you think? After all, airline executives and industry analysts say it could take years for the airline industry to recover to 2019 levels.

So why do I make this prediction? Again, pent-up demand. Many people have put off vacations, weddings, etc. for a year and are ready to make up for lost time. And consumers, particularly higher-income ones, will be in a great position to finally take that trip to the Bahamas they’ve been putting off.

The bar for business travel will be higher. Our friend Mr. Gates seems to believe that as much as 50% of all business travel will be eliminated post-pandemic. Airline executives are more conservative, predicting that most, if not all, business travel will come back in the next two to three years.

Once again, I’m somewhere in the middle. I believe that as much as 10%-15% of business travel may be gone forever. But that’s worse than it sounds. Industry group Airlines for America notes that while business travelers account for about 30% of airline passengers, they account for about 50% of total revenue (and even more in profits). Airlines that cater to business travelers (Delta), will have to make more changes to their business model than those that rely on leisure travelers (Southwest).

A caveat. Some companies may move primarily toward a remote-based workplace, with employees scattered throughout the country. The once-a-month or even once-a-quarter business traveler will be an important business segment for airlines to capitalize on.

Southwest Airlines is going to gain market share. No airline has been safe from the virus. But Southwest has come out the least scathed of all the major U.S. airlines. Why?

• They are almost exclusively a domestic carrier, which was hit less hard than international travel.
• They rely more on leisure travel, which was hit less hard than business travel.
• They had the strongest balance sheet going into the crisis.

Now they are looking to capitalize on the weakness of the other airlines by expanding into new markets and upping service in existing ones. The bigger airlines better sleep with one eye open.

MEDIA

Movie theater chains are in deep trouble. Earlier this year, WarnerMedia (the parent company of Warner Brothers) announced that all new movies would be streamed to its HBOMax service. While the release window (the time between when a movie is shown in theaters and when it’s released to streaming/DVD) has been closing for at least a couple decades, this is the first case of a major studio eliminating the window altogether.

Will other studios follow suit? I don’t know. But that release window will continue to tighten, making movie theaters all the more irrelevant. Of course, movie theaters could find innovative ways to lure people back into the theater, by continuing to make the movie-going experience more experiential. The problem is that movie theaters have been burning cash, making it difficult to take on the capital expenditures necessary to differentiate. I expect bankruptcy may befall movie theater chains in 2021.

Winners and losers will start to emerge in the streaming wars. Earlier this year, we said goodbye to Quibi, a mobile-based streaming service that just couldn’t find a loyal audience. Granted, a lot of that failure was due to the business model of on-the-go mobile entertainment launched at a time when we we’re 100% not on-the-go. Nevertheless, Quibi’s failure also foreshadowed a culling of the herd in terms of streaming services.

Simply put, there is just no way that people are going to sign up for subscriptions for every network/studio that wants to operate a streaming service, especially given the investment needed in both the product and marketing to make the service profitable. Either some services will go away, or they will move to a largely advertising sustained model (such as NBC’s Peacock).

RESTAURANTS

The real losses will be in 2021. Perhaps I haven’t been paying close enough attention, but I’ve actually been surprised that I haven’t heard more about restaurant closings in 2020. Maybe it’s due to PPP funding? Maybe restaurants have been surviving on takeout? 

I don’t know. The real question is whether already struggling restaurants will be able to survive an ominous winter, and whether we’ll be going to restaurants like we used to once the pandemic is through. I’m going to guess no. Which types of restaurants will survive? Large chains are probably fine – they’ll have more access to credit to weather the storm. In terms of everyone else, it’s pretty specific to the individual restaurant.

Regardless, expect to see fewer of them by the end of 2021.

CONSUMER PRODUCTS

Private label will continue its growth trajectory… 

A sobering reality of 2020 is that income inequality widened. While high-income earners have largely been able to work from home, low-income workers in the service industry have borne the brunt of 2020’s job displacement.

While the government basically subsidized the wages of these workers during the beginning of the crisis (and then some, with $600 per week in extra unemployment benefits), those benefits have now been cut. Struggling households, if they haven’t already, are primed to trade down to private label. Research has also shown that when people trade down to private label, they aren’t necessarily quick to trade back up once their financial picture becomes rosier.  

Expect retailers, both brick-and-mortar and e-commerce, to invest more into private label in 2021, and expect them to gain shelf space at the store.

…But some smart big brands have the opportunity to capitalize on strong brand equity. Many large CPG brands have had the opportunity to rake in record revenue and profits due to the coronavirus. Some brand strength has been for obvious reasons (think Lysol and Clorox). But packaged food companies, for instance, have been able to take advantage of us eating at home and our desire for comfort food. As a result, these companies (such as KraftHeinz, General Mills and Campbell Soup) have reversed years of stagnant and/or declining sales.

Those sales will come back down in 2021 (we might not eat as much Kraft Mac and Cheese next year). Nevertheless, these firms have increased their brand equity and, if they’ve used their recent sales bump to up their marketing, innovate their products and improve their e-commerce capabilities, they will be in a good place with consumers.

THE BOARDROOM

Executive compensation will come under scrutiny... Annual reports for many companies are coming out in the next couple months, and I can already envision the news stories.

“Company X laid off 10,000 people in the height of the pandemic. Since then, the business has rebounded, and the board has awarded the CEO $50 million, a 125% increase from the year prior.”

Early in the pandemic, many CEOs and other executives decided to stand in solidarity with their employees by taking a pay cut of 10%, 20%, 50% or even waiving their salary entirely. But before you start a GoFundMe page for these folks, let’s take a closer look at how executive compensation works. Below is a breakdown of average CEO pay by company revenue.

But that’s total compensation. Below is a breakdown by salary:

So when many CEOs “nobly” cut their salary, it was really a small fraction of their overall compensation. And with a rising stock market, many were made whole again and then some. Shocker!

Some companies may face backlash from investors and cut pay. But mostly, the companies will just suffer some negative public relations before paying their CEOs obscene amounts of money. And people will just be angry. Enjoy your yachts, boys!

…So will stock buybacks. Stock buybacks are so common now they rarely generate any press. It’s hard to believe that until the 1980s, these transactions were actually considered illegal stock manipulation.

Earlier this year, airlines came under significant scrutiny for stock buybacks. The airlines went to Congress asking for a $50+ billion bailout. Seems reasonable – demand had fallen to near zero due to a once-in-a-century pandemic. But when airlines could have used some of their retained earnings to buffer for a rainy day (read: years), they chose to reward shareholders instead. They’re probably not feeling rewarded now, are they?

I doubt we’ll ever go back to the days where companies are prohibited from buying back stock. However, companies will be under pressure from stakeholders to invest their cash in growth rather than to artificially inflate their share price. 

THE MARKETS

It’s Models and Bottles for M&A Bankers. During the first half of the year, M&A activity fell sharply from 2019. That makes sense – we were knee-deep in the largest public health disaster in a century, and there was no telling where the music was heading. It only made sense to hold off.

As the economic landscape became clearer, M&A activity sharply picked up. And as we move toward 2021, many firms will find that the best way to compete in this new world order will be through M&A. The companies with strong balance sheets will decide to go bargain hunting for companies with lower valuations. According to PwC, 53% of executives said they planned to increase M&A activity for the upcoming year.

Unfortunately, M&A often leads to job redundancies. This trend could keep unemployment levels elevated for the next couple of years.

What’s the deal with SPACs? The year 2020 has brought forth quite a few terms in our lexicon – I had never used the words “coronavirus” or “social distancing” before 2020. In the business world, the word of the year was “SPAC,” which stands for Special Purpose Acquisition Company.

A SPAC is a company with no purpose other than to raise money for an initial public offering. While these types of companies have been around for decades, they’ve increasingly gained favor as of late. According to Goldman Sachs, 206 companies raised $70 billion in capital through SPACs in 2020.

There are some benefits to SPACs, namely that companies can go public without the work or the risks involved with traditional IPOs. Expect the SPAC craze to continue.

MISCELLANEOUS

Sam will actually build out a website/newsletter. I know, I know. I keep saying I’m going to launch a website and/or newsletter. And it never gets done. But I’m committed to building one out very soon (like, in the next month). And unlike my New Year’s Resolution to lose weight and stop cursing, I actually plan to stick to this one.

Now it’s your turn. Do you agree with my predictions? Any big business trends I missed? Comment on your thoughts below. Also, did you like what you read? Check out some more of my articles below:

Quibi: The Little Streaming Service That Couldn’t

New York City: Is It Really Dead?

How Big CPG Can Find Opportunity in The Downturn

How Small CPG Can Respond to Big Brand Sales Growth

Please, Let’s Ditch Quarterly Earnings Forever