Feature image: Over-retailed in the U.S. market. Brands should pay special care to pick the retailers that will likely stick around. This visual and additional content about it is contained in the Visual Dataset.
Platform Updates Summary
Business observations I see as a result of COVID-19:
- Huge spend shift in food away from restaurants to retail channels, which has been good for many retail channel food vendors, but a lot of that has been pantry loading, taking from future demand, and as spend shifts back to restaurant, it makes sense that it will drop retail sales back down to a base level.
- Discretionary spend across all consumer products sectors taken a huge hit, although some bouncing back to normal levels as of May, but this may be a false recovery (read below).
- The economic dislocation caused from COVID has been further exaggerated due to poor underlying fundamentals in the economy (late-stage in an economy cycle, too much debt across all sectors, too much manufacturing capacity and inventory), which means that the economy will not return to what is was before because these underlying problems are now wreaking havoc.
- Consumer staples, especially that which is cheapest, is doing well and will continue to pickup more share, which includes the channels and retailers that sell with the lowest prices.
- We will not return to what was before COVID because the underlying structure for how to manage the economy must change: social distancing in restaurants and travel means fewer tables/airline seats means fewer profits and/or higher prices to pick up the slack; more costs to clean public areas, whether that is restaurants, planes, hotels, office buildings, etc, which means lower profits and/or higher costs.
- The potential for a resurgence in the pandemic and increased measures to help mitigate its effects (closures) is very high given current analysis, especially since a vaccine is not likely through at least 2020.
- The government spending to help cushion the blow is almost a waste because it is just helping dam the flood (or partially dam). It will do nothing to help with investment to create more spending and more employment. And the debt will have to be paid off, which means a further drag on the economy for who knows how long.
- Commercial real estate could be in for a nuclear winter as closures remain in effect and companies realize they can work remote without expensive office space.
- As time goes on and the above effects manifest and sink in, confidence will erode further, which will reduce spend and reduce asset values, especially in the public markets and commercial real estate. We are in a depression by all measures, and it could take years to work its way where it reaches rock bottom before starting to recover.
- Residential housing is a question mark for me: inventory has been low for awhile and there is need for more of it, and with people working more from home, it may increase demand, especially in more suburban and rural areas where people realize they can live and work from. But with the economic troubles I see ahead, I do not know how it will perform. Maybe it will maintain values, but not rise, or fall due to economic troubles overall, but not fall as much.
I am pessimistic in the medium term about the overall economy. I think there will be pockets of growth and potential for success, especially in staple products that are cheapest, companies that have exceptional brand loyalty (which is very very few), and products that leverage technology to bring innovation that deliver cheaper/better/faster products over incumbents. To see a list of technologies I follow that I am looking to leverage into consumer products, click here.
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Other Items Worth Sharing
The following visuals and additional content about them are contained in the Visual Dataset