Executive Summary

Very short summation: We are moving rapidly to a “services” economy which will mean lower wages, fewer roles, and less-educated jobs. The upside is that family, property improvements, personal transportation and in-home cooking will dramatically increase in value.

What’s driving this is largely the enormous “work from home” movement and this will not rebound–it’s here to stay, forever forward. This was a direction ahead of C19, but C19 catapulted into a depth none of us saw coming. Sure, engineering was solidly heading in the WFH direction, but what we are seeing now is surprising. Newscasters anchoring from their kitchens, daily talk shows from home office, even entertainment like Saturday Night Live and Idol and virtually ALL traditional in-office roles all done via from home and still incredibly effective. And the ripple-impact is enormous so too is investment.

WFH-The single biggest artifact of the new world

While there are lots of changes in the business and economic arenas as a result of C19, none will have as much direct and ripple effect as the enormous movement to WFH. Let’s first look at the stunning impact on business-related costs and consumption.

First is corporate office space. Any significant urban setting (NYC, Boston, LA, etc) is largely (80%) corporate office space related. Very few “office jobs” will remain that truly need an office and the longer the “stay in place” orders bleed from months into quarters into the end-of-2020 year, the more the world will entirely adjust to a non-office environment. Picture all the major office towers in those cities now nearly empty. Let’s look at the ripple:

First up, 80% of corporate office space will go dormant; unpaid leases etc.
Less office space means far less travel and airlines will continue to be at-best 10% of former capacity.
Less travel means business hospitality (which is the majority of the hospitality industry) will dry up.
Which follows that the majority of in-urban restaurants will drop to 10% of capacity (no fast-lunches for workers, no corporate events, no corporate dinners, no traveler dinners).
With WFH, workers will no longer desire to live in-city (because there is no travel advantage); they’ll seek suburban green grass and family; again hitting urban real estate and urban attractions such as restaurants.
Commuter rail, long-distance rail, and public transportation will also drop to 10 to 25% — the majority of commuter rail travel is office-business-works now dinosaurs. The massive capital cost of rail (trains, maintenance, etc) will drain budgets so staffing and schedules will be dramatically reduced.
Retail (brick and mortar) was dying anyway, but C19 will end its journey faster. Examine simply clothing — even with a more “casual dress” work force since 2000, the workforce is now wearing sweatpants. A significant amount of clothing is sold to a population that had to look presentable “at work” which is now removed from the equation. So we’ll see brick and mortar close up faster than ever and with the resultant impact on a huge number of retail employees.
The impact on car sales will also be noticed. Families that always had two cars might try to live with just one (and save nearly $1,000/month as a result). They will certainly push off such capital purchases and the “lure” of a car (status, sexappeal, etc) will dwindle — it’s just a mechanism to get from A to B (formerly to an office) and we’ll seek Uber and other personal transportation more.

All of the above is simply from the one HUGE world-direction-change to WFH and this wont ever reverse. It was heading this way, slowly, before C19 but now is proven to be effective. We used to travel by horse and carriage until cars came along, we will never go back to horse and wagon. Same with how we will conduct business going forward.

What market/segments will benefit from C19?

As unsettling the prior section alludes, many areas will benefit from the changes (although it will be pointed out that a more services-oriented economy does not spell more wealth). Let’s start by looking at some of the top winners going forward.

Supermarkets. Already at all-time-high profit and revenue. What’s happening? WFH. Everyone is at home, people are reluctant to go out (social distance but also cost and being unemployed), and family life has new importance now.
Liquor as well — all time high. Partly because people “are home” more, partly boredom/fear, and partly that it’s affordable (versus restaurants and bars).
Home improvement ala Home Depot, Lowes, and all contractors. What’s happening? For one, people being home now “see” what needs help on their property; partly boredom; partly pride.

Those are the huge winners; let’s now look at other solid winners.

Delivery services (UBS, FedEx, private). Any business, logistics, or human that can “move stuff” wins.
Ride-sharing, food delivery (Gubhub, Uber Eats, etc). Given the restaurant experience has changed (if not disappeared) partly from social distancing and perhaps coupled with fewer cars and a general “deliver me anything I want” 2020-Internet-Generation mentality these offerings will grow dramatically (again, services-oriented).
Personal training now at-home. Gyms will dwindle (why? social distancing, fear of germs, distance, cost). Devices like “Mirror” and the Peloton series and endless almost-live yoga/exercise classes rule the new world.
US-based pharma development and fulfillment. It is very clear that the dependency on China must cease and stimulus will bring that manufacturing (among other manufacturing) back to the US.

Let’s now take a look at the third layer of industries that will change and benefit; still very significant.

Ambulatory healthcare will shift to e-visits. The world is now very comfortable with zoom and teleconferencing and the worry/risk of visiting a doctor office plus the time and travel will sway towards an increase in electronic visits and diagnostics.
Customer support was slowly heading to WFH, but now we will see 100% of customer support occurring out of the house — already the large telecom carriers have embraced this.
Education will never be the same. The trend was already happening at the university level (U Phoenix and virtually all other major schools) but now it will dramatically increase. This fall, a significant number of enormous-sized universities have stated they will ONLY offer on-line classes for Fall 2020. It works, and works well, and is more affordable. What is interesting is that even K-12 has forcibly gone virtual and seems to be effective so that might continue as well.
Personal transportation. With a more “casually dressed” semi-workforce, non-urban settings, and perhaps fewer personal cars, we will see a dramatic increase in: Bicycles, Segway-like devices, and self-driving mini-vehicles (electric). We’re getting our “big stuff” (groceries, supplies, clothing, home goods) delivered, transportation really becomes: Get me from here to there, easily, cheaply, greenly.

The big worries

Given there is both some good and lots of bad in the forthcoming changes, what are the areas that are left hanging with no good solution in sight?

Corporate real estate. WHAT are we going to do with all those square feet? This is a huge worry, and risks a lot of capital, and that is not good for the markets.
Entertainment such as restaurants, movies, parks, amusements, stadiums. These were essential parts of our life and never questioned, but now are entirely questioned. Can a restaurant or bar survive at 25% occupancy (and do you really want to go in such a setting?). Will we ever go to a movie or stadium with people in breathing distance? There have been no good solutions proposed or envisioned.
What about the school and university buildings and housing? They will be empty and no other industry is ripe to consume them.

Investment Summary

On the positive side, here are the most-obvious investment opportunities:

Service-anything (delivery, ride-sharing, etc)
Supermarkets and Liquor
Home Improvement, contractors
Electronic-anything (laptops, pads, phones, fitbits, Mirror, Peloton, conferencing, TV, audio, etc).
Personal transportation

Contra-investments:

Urban real estate
Travel (air, train, public)
Hospitality
Clothing
Restaurants/chains
Cars

Summary

C19 has not necessarily changed the world by itself but what it has done is taken a trajectory already in the making and 10-fold increased its velocity. Things change. These are not temporary changes; they are here to stay. On the positive side, we will spend more time with our family, enjoy our property more, and value our personal and free time more. However, we will do-so at a lower income rate, smaller workforce, and more personal-separation than in the past. To those that figure out how to maximize this for their pleasure and wealth will survive the best.

C19: What it means for investment, economy, survival