Winners & Losers: who will capitalise on the current crisis?

Being in lockdown makes you think about how things will change when we move past this disaster. There have been few major global events in recent history which have been as catastrophic as Covid-19 — we now have our defining moment which will be talked about for decades. It will be taught in schools and universities for many years to come. 

Although the pandemic will affect our economy for generations, we are also in a position to capitalise on it. Winston Churchill is credited in saying “ Never let a good crisis go to waste”. This period should be used as a form of shock therapy — an event which will allow us to shape change. Pre-Covid, there were many industries, services and practices which had become stagnant — bumbling along at a glacial pace with little to no innovation. 

This crisis will force adaptation and change in the new world. For some it will be within their control — for others it will driven by others innovating. There are 4 areas which I predict will see considerable shifts in the next 1-2 years which include: Office Working, Cinemas, Fitness and The Supply Chain. 

Office Working

For many companies, it has been standard practice to rent office space for all of their current workforce (plus a buffer should they continue to grow). Pre-2010 this involved signing up to a long lease which often included onerous clauses — this was of course disrupted by businesses such as WeWork who provided companies with more flexibility. 

Even with this disruption, employees were commonly expected to be in the office 100% of the time — unless required at offsite meetings. Each day people were tasked with finding a way to the office — commuting for more than an hour each way in some of the larger cities. Flexi-time, or working from home, was a perk given on the rare occasion. 

This was the ‘old way’ of working. This pandemic has shown many businesses that employees can be productive (perhaps even more so) whilst working for home. With access to technologies such as Zoom (which has seen an 1,900% increase in usage over the past 3 months), office staff have been able to carry out their daily tasks whilst remaining connected to their colleagues and clients. 

Post Covid-19, I believe businesses will start to explore other ways of working more efficiently. They will start to question why they have an office with 100% capacity. They may start exploring a reduction in available seats — with the shift to hot desking on a full time basis. The office may become a place for company wide meetings & events only. They may also start exploring a ‘working from home’ rota, with employees required in the office only 2-3 days per week.  

How will this potentially impact businesses? There are a number of positives including a reduction in costs due to less office space. It could provide the business with more productive and autonomous employees. It could also lead to an increase in happiness and retention (due to a reduction in commuting). And businesses could capitalise on the current situation by becoming more technological savvy. 

So who are the potential winners and losers in this scenario?

• Winners: Zoom, Microsoft Teams, Slack, the environment
• Losers: Office landlords, WeWork, car sales

Cinema

I am a huge film buff and love seeing the new releases — but ultimately I think the current model is broken. 

When new films are released we are now asked to pay somewhere in the region of ￡12-￡15 a ticket. If you want a drink and a snack, add on another ￡8. For a family of four, you could be asked to pay upwards of ￡70 for a trip to watch the new Marvel or Pixar film — the prices have become ludicrous.

The production of movies is also becoming more expensive — with many of the new action films costing upwards of $200M to produce and distribute. Movies studios are trying to find ways to turn a profit quicker — however they are challenged in doing so due to ‘theatrical windows’. In place to protect the revenue of theatres and set at an average of 3 months, these windows hinder studios from releasing their content to other mediums (e.g. streaming) to recoup costs. 

Covid-19 has provided movies studios with an opportunity. As theatres are now shut around the country, they will now be able to test the feasibility of other options for distribution. Some studios already have platforms to distribute content straight to the consumer (e.g. Disney+, Netflix) — we could start to see new releases delivered here on a pay per view basis. Other studios may start to explore either their own walled garden platforms, or look to leverage existing offerings on a licensing fee. 

What the commercial models look like is TBD — however providing access to the consumer at a more accessible fee (less than ￡70) would be outweighed by the increase in the potential audience for a film. It would also provide the studio with access to revenue faster. 

This is one to certainly watch out for — and who are the winners and losers?

• Winners: Netflix, Disney+, all other streaming services and movie goers
• Losers: Theatres

Fitness

If we wanted to lose weight or improve our fitness we previously would have subscribed to a gym or a fitness studio. These options typically involve an investment — the fees in some cases being excessive (e.g. F45 can cost up to ￡200 per month).

I am not disputing the fact that membership to these options drives results. As we move into the new world however, I feel people will start to explore other ways of keeping fit which are more economical.

As we have all been stuck in our homes, we have had to be resourceful in order to keep fit. There has been a steady rise in internet based workouts, from free options through to paid subscriptions. Apps such as Centr, which requires a small monthly subscription, provides users with a number of workout regimes and mindfulness options. These types of businesses can be more cost effective for the consumer as they do not require an overhead such as an expensive inner city studio. Businesses such as F45 could and should pivot their offering to provide consumers with an app only option to remain relevant. Social media platforms such as Instagram have also been flooded with home workouts, available to people who are looking for a quick and easy free option to keep fit. 

We have also seen the rise of home based equipment — yes, the initial investment needs to be considered, however the lifetime value of the product is more economical than a classic gym membership. Peloton, a stationary bicycle which allows users to participate in live streaming classes, is a winner in this category. They have already seen their stock increase by c. 63% from the 12th March — and could be an excellent acquisition for the likes of Apple (their hardware and monthly subscription model would be a perfect buy for the technology heavyweight). 

One could argue that this industry is always evolving — that said, I believe that it is ripe for further disruption as we move into 2021. So who are the winners and losers here?

• Winners: Home equipment, Peloton, home instructors, app based workout businesses
• Losers: Gyms, fitness studios 

The Supply Chain

In the 1970’s, China manufactured a very small proportion of the world's goods. Fast forward to today, China is by far the leading manufacturer — making up c. 28% of all output in 2018 (10% ahead of the US — who are second in the rankings). 

There have been a number of advantages of this shift — namely cheaper production costs, higher production capabilities and efficiencies. However this global pandemic has proven that there is significant risk in over-investing in one country to produce many materials. 

When the virus took over China and lockdown was imposed, many businesses' supply chains were compromised. Apple, who manufacture a large % of their products in China, saw their supply chain crippled overnight. This resulted in their stock falling from an all time high of $327 (12th Feb) to a recent low of $224 (23rd March). Their stock has since recovered slightly however the same issue remains — overreliance on one producer will come with a significant risk. 

Apple is not the only business leveraging China to drive efficiencies — there are many who utilise the production capabilities of the industrial giant to meet consumer demand and drive better profit margins. 

Moving into the new world, I believe we will start to see these businesses look to other regions who can help with production — starting to diversify their position and limit risk should there be any future volatility. It will become less commonplace for products to have the standard imprint of ‘Made in China’ as we move into the new era. This will become a big talking point for businesses in the next 2 years — I would be surprised if companies are not already exploring this topic in more depth as we speak.

So you can probably guess the winners and losers here

• Winners: Other foreign manufacturing economies & home market production
• Losers: China

Conclusion

So there we go — four predictions on four areas which I believe will see significant shifts in the next 2 years. I am sure there will be many other things which will change outside of these — however only time will tell. And although it will be one of the hardest periods for us all to live through, there is certainly some positivity and excitement about what is to come next.