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Working from Home: who are the winners and losers?


Market Update

Working from Home: who are the winners and losers?

Governments around the world reacted to the coronavirus pandemic by placing countries into lockdown. Despite furlough schemes and other support measures, certain sectors were hit particularly badly with many businesses forced to close, with a significant number unlikely to reopen. For obvious reasons the hospitality, travel and leisure sectors suffered greatly, as did many retailers deemed to be providers of non-essential goods or services. This list includes major department stores, cinema chains, hairdressers, beauty salons and bookshops. Shopping centres and high streets became dismal places to visit. It’s only now that non-essential shops can reopen that we see the damage caused to small businesses by the virus, or more accurately, the government response to it.

Survived and thrived

On the flip side, there are businesses that have survived, or even thrived, with many of us employed by them able to work from home. We may have missed the company of our colleagues, but probably not the commute. But if working from home has worked out well for the workers, what about the business owners? Recent surveys have shown that the ‘working-from-home’ experiment has been something of a success. Productivity has been strong, persuading companies such as Amazon, Alphabet (Google and YouTube’s parent company), Morgan Stanley, JPMorgan, Twitter, and others to announce that they will continue with the programme. They’re not alone. Many mid to large-sized corporations have realised that they can save a bundle in rent, as they find they can run their businesses effectively outside an office environment, negating the need to maintain flashy offices in expensive cities.

Blended working

Studies over the past decade predicted that there would be an increased shift to working from home. But the Covid pandemic has forced the situation. It’s now a given that a mixture of home and office working should soon be the norm for all manner of organisations. There will be losers from all this. While the residential property sector is looking healthy as workers relocate to quieter areas and away from cities and towns, the outlook for the commercial sector is more complicated. The demand for large spaces for corporate headquarters should continue to fall, and this will mean a rethink. It will be interesting to see if WeWork, former poster child of commercial real estate, manages to raise itself from the dead and finally go public via a SPAC as rumoured, following its failed IPO attempt in 2019. That depends on its response to changing work habits. Many office buildings will have to be repurposed for mixed usage. And with people spending increasingly longer in their homes, they’re likely to raise their spending on anything that makes life more comfortable and productive. This should continue to benefit companies such as Amazon, Apple, Microsoft, Alphabet, Slack and Zoom.

Big get bigger

It’s perhaps a sad fact that huge retailers such as Amazon and Walmart will keep getting bigger, to the detriment of the smaller chains that have been unable to adapt quickly enough to the new reality. It’s odd writing that sentence when you consider that online retail has been a growth industry for the whole of this century. Yet it wasn’t that long ago that Walmart was criticised for relying on its big, out of town superstores and neglecting e-commerce, a service which now contributes so much to the business that it is actively challenging Amazon in certain areas. It’s also ironic that the share price explosion in GameStop earlier this year came as the bricks-and-mortar video store looked to boost its online presence, years after many similar businesses had failed to do so and gone under.

High street blight

But that aside, those small retail chains that depended on shoppers walking in off the street are in terrible trouble. In the UK we’ve seen many high street stalwarts disappear, such as Debenhams, Topshop, Burton, Monsoon and T M Lewin. In the states, JC Penney, Neiman Marcus, and J Crew, have filed for bankruptcy. Meanwhile, many restaurant groups, pubs, airlines, hotels, resorts, and cruise lines will struggle to recover. There’s also the knock-on effect on those companies that provide goods and services to these sectors. The question now is how do those key high street players respond? There’s certainly less competition around, and it’s fair to say that many of those failed retailers were not only overindebted, but also neglecting to provide what customers were after. The high street is vitally important, not just commercially but also socially. But to ensure its survival it’s going to need some help in evening out the advantages that online retailers currently enjoy. A rethink on business rates may be a good starting point.

Image shows quaint UK high street with shoppers and buskers

End in sight?

While the Covid situation in India and Brazil is truly shocking, there are some signs that lockdowns are ending as the vaccine rollout accelerates across the US, UK, and Europe. The big question for investors is what happens when we come out of the pandemic?  Amazon, one of the biggest corporate beneficiaries of lockdown, recently reported a 44% increase in year-on-year sales and a tripling in profits. But it doesn’t consider these blow-out numbers as a one-off, as it still released upbeat forward guidance for the second quarter of 2021. In contrast, Netflix’s stock fell 10% straight after it announced revenues and earnings that beat expectations. The reason? Global paid net subscriber additions came in at 3.98 million against expectations of 6.2 million. The streaming giant blamed the slowdown on the ongoing coronavirus pandemic, which forced the company to delay some of its big-name shows and films. But it also faces stiff competition from the likes of HBO, Amazon Prime and Disney+, the latter launching just months ahead of the pandemic hitting.

Winners and losers

So, it’s fair to say there will be winners and losers, even amongst those companies which on first look should profit from the pandemic. Growth stocks, which include Alphabet, Apple, Amazon, Facebook, and Microsoft have all just posted solid earnings and revenues for the first three months of the year. These are all businesses which have not just weathered the storm but have genuinely prospered during the pandemic because of the types of businesses they run. But there are ‘indirect’ pandemic effects on stocks as well. Just consider the response to the crisis in the form of monetary stimulus from central banks, and fiscal stimulus from governments. All companies can benefit from low borrowing costs. But loose monetary policy has done wonders for companies with high valuations based on future growth. Consider Tesla whose stock rose roughly 10-fold last year. Low interest rates have helped Tesla to borrow cheaply, refinance and expand while fiscal stimulus has also encouraged stock market speculation. Not bad for an EV manufacturer which, despite recent gains, still produces far fewer vehicles than most of its rivals.

Debt mountain

Going forward, we can hope that the coronavirus will become less of a concern. It will always be with us in one form or another, but the early indications are that it can be tamed by vaccines from the likes of Pfizer, AstraZeneca, and others. Hopefully, governments won’t rush to put us back in lockdown if new cases emerge. Hopefully our economies will recover, and unemployment will fall. But then we have another problem to address – the shocking levels of government debt amassed in response to the pandemic. We’re currently living with low interest rates which make financing this debt relatively painless. But what if the recovery leads to a leap in inflation? Will the world’s central banks sit back and let that happen, or will they be forced to raise rates? Either situation will throw up big challenges for investors.


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