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2020 - The Year That May Never Happen

It is still April, but with eight months to go, it looks like 2020 chances to happen are not too good. In this article, I want to discuss the effects of COVID-19 beyond the medical consequences, causing financial anxiety in a highly leveraged economy.

Many sectors are calling dramatic revenue decreases, with Hotels showing less than 8% of occupation, and Airlines expecting a staggering 90% decrease in sales in q2. Retail damages are still to be calculated in full, although the most optimistic views are not that good. Next in line will be consumer goods companies that rely on a healthy consumer market to keep growing. With unemployment rates going through the roof, demand will likely retract, forcing the industry to review their offer, and generating another adjustment on the workforce.

The tech sector is less affected at the moment; the big four (Microsoft, Apple, Google, Amazon) seem pretty solid. Cloud services are in high demand and will continue to be, while remote working benefits technology solutions such as 5G, collaboration tools, mobile applications, and information access. eCommerce is experimenting with a new wave of growth, given the guidance to stay at home. However, how long can the big four sustain growth if the companies who buy their service are not? 

Are we overreacting in the economic sector?

Professor Robert J.Shiller, a Nobel laureate in economics from Yale University, mentioned a phenomenon called the 'affect heuristic' in an article published at Project Syndicate (www.project-syndicate.org/), entitled The Two Pandemics. The event occurs when people are emotionally upset because of a tragic event, and they react with fear even if there is no reason to fear. The stock market variations are an excellent source to evaluate how people are responding to the crisis. A sharp decrease, as seen in recent weeks, shows a lack of confidence that the pandemic will end shortly, and uncertainty about the time of recovery. The spread of social media, certainly helped us to be more connected, and also helped us to spread anxiety panic much faster than in the past. An alternative approach to panic is to think about the possible scenarios pos-Corona Virus.

What is the path to normality?

Firstly, it is essential to acknowledge that we will not be back to where or what we were before. We learn with experience, and we change, sometimes for better sometimes not. Hence, we will have a new normal once we are back in business. 

Large companies have now in place a BCP (Business Continuity Plan), to limit the crisis impact on employees, shareholders, partners, consumers, and communities. Among the measures, remote working is a popular one. Although it has been an option for a while, it is booming now due to the necessity. With more people working from home, you decrease commuting times, giving back precious time for employees. There is a question on productivity given lack of supervision and level of engagement of the workforce. Perhaps there is an opportunity here for a new norm, where we establish trust by increasing accountability and delivery commitments. A clear benefit for society is fewer gas emissions produced either by cars or long-distance travel by road or by air. 

In their 2019 State of Remote Work study, OWL Labs (www.owllabs.com/state-of-remote-work/2019/) highlights the latest trends pre-Corona Virus. They surveyed 1,202 Americans, 745 (62%), who worked remotely at any frequency - 30% of respondents worked remotely full-time -, and 457 (38%), who worked on-site. The first observation is that 36% more on-site workers have been at their current organization for more than ten years and that 7% more remote workers have been at their current organization for five years or fewer. Interestingly, the numbers are favorable to on-site working if you cut the sample for workers' tenure to less that one year. This suggests that new employees tend to prefer to work remotely; however, companies may think they require some on-site training before that happens. Among other findings, we learned that remote work makes employees happier (83%), feel more trusted (82%), better able to achieve work-life balance (80%), and more inclined to take a pay cut to benefit from added flexibility. 20% of survey respondents would take a pay cut of more than 10% to work remotely.

The productivity myth.

Yet according to the report: "One stereotype about remote workers is that they work fewer hours than on-site workers, but many remote workers work as many or more hours than their on-site counterparts because it can be challenging to unplug from work. We asked respondents how many hours per week, they work to compare remote workers and on-site workers. Remote workers and on-site workers are working 40+ hour work weeks for different reasons. On-site workers are also working longer weeks because it's required, and more remote workers are doing so because they enjoy what they do."

What about the Travel and Hospitality industry and Retail?

Companies in those sectors are severely affected, and their workers can hardly work remotely. Most of the tertiary sector players need to be close to the customer when delivering their services, except for product retailers.

That is where we see unemployment rising the most, following closures of services, and a dramatic demand decrease propelled by the pandemic crisis and the measures that require people to stay at home and avoid social gatherings. Researches are still not conclusive on consumer's behavior once the 'stay at home' order is no more in place. There will be a period of adjustment, where the service sector will still see lower than 'normal' demand. A milestone will be when a vaccine is released. Unfortunately is probable that the Corona Virus somber will be living with us for a while. Remember that the virus has caused two other recent epidemics – severe acute respiratory syndrome (Sars) in China in 2002-04, and Middle East respiratory syndrome (Mers), which started in Saudi Arabia in 2012. In both cases, we missed the chance to develop a definitive vaccine. 

I wouldn't say I like predictions. Instead, I prefer to formulate hypotheses. 

  1. In the hospitality segment, more well-known brands will be more prepared to take preventive measures than AirBNBs, attracting back casual travelers. - On the other hand, one may prefer to stay in place with lower customer turn-over.

  2. eCommerce will experience a second surge, generating lots of opportunities for logistics and transportation operators, especially in the last mile delivery segment.

  3. Local retailers will come back stronger because consumers will favor familiarity and community. - Meaning proximity will be paramount, which is a chance for small businesses to re-establish their operations, and workers to have job options close to their homes.

In conclusion, this is not the first and will not be the last worldwide crisis. As we evolve, I hope that we keep learning with our experiences and can see the positive side of this situation. I see families connecting and talking more often, people rising to help each other within their communities, governments concerned about jobs, and technology speeding up solutions and running to produce a vaccine in record time.

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