Thursday, July 2, 2020

Things can only get better!

Will things change for the better post Covid 19?
 

Nearly everyone I speak with at the moment keeps asking, will the world get better and will we care more for the world and each other as a result of Covid? Have we learned our lesson about sustainability, ecological damage and the lifestyles we lead?

It's a good question and not one I would like to put a bet on (I am afraid that I am a sceptic when it comes to human nature and don't believe that many are inclined to change their behaviour so easily). That being said I could be being proven wrong, because after speaking with some of our asset manager partners recently (Tilney, Rathbones, Jupiter, Janus Henderson, to name a few), they pointed out that there are some notable positive trends that are emerging from the lockdown during the Covid crisis. These trends could seriously affect the way we lead our lives and hence how we invest our money and so are worth a mention here.    
 
I will touch on four trends which could have legs and are great dinner party conversation if you are bored of Covid talk and talk of house prices!



1.  Smart working. 

Let's just get the pronunciation correct for Italy before we start. It is 'smat whirr-king'. Now that is out of the way, we can talk about the impact of smart working on the workplace.

The best way to explain this is to give the example of a friend in Rome. Our kids go to school together and he works as a director at the energy company ENEL. He was informed, not long after the lockdown, that smart working arrangements would become permanent with immediate effect and that from January 2021 they will impose a global three day smart working, two days in the office, working week. This will apply to all global managerial staff.

What is interesting about this is that ENEL are not alone in this decision. There are numerous other large firms taking the same decision. ENEL have understood during lockdown that as a company they can perform all their normal activities online: conference calls, video meetings etc. For the days in the office, the work place will be arranged into a number of generic work stations with connection capabilities and which will have to be booked in advance to ensure a place on your work day. 

As a result of this, ENEL are not going to renew 1500 contracts (which was to be expected!) but more interestingly they are going to be closing a significant amount of office space which will go onto the property/rental market. With many other firms taking similar decisions, what is the impact going to be on the commercial and residential property market? Could this lead to a surplus of property and push prices in cities down? Equally, what about people working from home, is the space they have sufficient? These thought leads nicely onto Trend No. 2.


 

2.  Nesting 

I always thought that nesting was the time when a young couple met, starting dating seriously and before long started making plans to buy a house, settle down and maybe think about planning a family.

Nesting is now the term also used for property owners who are looking to either sell up and move from a urban area to a rural one, or others who are looking to purchase a second home in a rural/countryside area.

Data is coming out at the moment to show that the professional classes (who are the main beneficiaries of smart working) are taking steps to rethink their lives in light of the lockdown crisis. In the USA and also the UK, data is showing that there has been a surge in requests for information about countryside properties or periphery areas to live, equally homes in urban areas with a garden and/or near an outdoor space such woods or lakes. In London, searches for houses with gardens are up 42% on last year. Is this a long term trend or something that we will see more of? At the moment it is likely to be a knee jerk reaction to the lockdown and is predominantly something that the professional classes have the fortune of being able to take advantage of, but it is not beyond imagination that this is a trend that is here to stay because, like my friend who works for ENEL who is also considering his current living arrangements (he will need an office space at home), a lot of people who will now have the option to work from home will want to do so in a non-polluted, potentially more creative space, with perhaps contact with nature or at a minimum another room in the house which they can turn into a work space.   

And it's not just the property market that this could affect because the trend could also affect the provision of public services and utilities. Things like health services, schools and also the distribution of retail outlets as a way of servicing more disperse populations may need to be rethought. It would present some real challenges but create some great opportunities as well. What will be interesting is to see how bailout money from the EU is allocated and what, if any, conditions are attached to it, because the talk is that significant demands will be made for EU states to invest in green infrastructure, show significant contribution to climate change goals and ensure the provision of health services to citizens everywhere, to be eligible for Covid 19 bailout money.

Interestingly, in Italy I saw a news article a week or so ago with a Sindaco in Umbria who said that he was looking to get funding to get the medieval town connected up to high speed internet, with the idea to re-populate the area with younger professionals who want to work from more beautiful places and not be confined to cities. I have been saying the same things for years. Without a high speed internet connection, the most beautiful towns, cities and villages in Italy are going to be inhospitable to anyone, not just the younger generation. To reverse the brain drain, first you need to provide a high speed internet connection to your citizens. High speed internet has become a utility just like gas, water, and electricity. So, let's hope they manage to do something about it and attract human capital away from the cities and back into more creative and beautiful parts of the country.
 

3.  The return of the family meal 

This is a nice new trend for whoever yearns for the old days of sitting around the family meal table and enjoying quiet time together. Apparently, during the quarantena the habit was on the increase and the latest research is showing that families who had traditionally not eaten together because of professional parents returning home at different times in the evening, or otherwise being busy, were being forced together and taking advantage of this time to immerse themselves in the culture of the traditional family meal.

What might this mean in terms of changing trends? Well, it appears that during the lockdown, those same people who were returning to the family dinner table were also purchasing more expensive food and more of it. (I can attest to this because I also thought that since we were locked at home with no way of escape, then we should at least eat well). If people eat at home more frequently and can enjoy family meals more frequently, then might they be more inclined to buy more expensive food and also more expensive wine? And more of it? That may also mean that people also demand more takeaway / delivery services (think Deliveroo, Just Eat, Glovo etc). And lastly, what kind of long lasting impact could it have on the hospitality sector, restaurants and hotels?

These are trends which money managers are watching closely, less because of the habit itself, but more the reaction of big food and drinks firms. To give you an example, the big drinks firms Diageo has carried out a survey and found that 80% of its sales are for use in the home, not for consumption in bars etc. This may come as no surprise but it does beg the question for a firm like Diageo - why are they selling through third party channels like supermarkets and other distribution channels when most people today are used to receiving deliveries at home? Could they cut costs by selling directly? This brings me to point No. 4 and a story about everyone's favourite sportswear company, Nike.

 

 

4.  Cutting out the middleman 

During the lockdown, I like many other people, watched quite a bit more Netflix than I am accustomed to. One of the series which I watched and thoroughly enjoyed was 'The Last Dance', a documentary about Michael Jordan and the story of the Chicago Bulls during their record breaking six times NBL championship wins. A great one to watch if only for the acrobatic magnificence of Michael Jordan in his prime. Why am I mentioning this? 

Nike created the line 'Jordan' on the back of the sporting genius of Michael Jordan and it has been a success ever since. What has been notable is that that the brand 'Nike Jordan' during his time at the top was built on the back of traditional advertising/marketing and retail outlets. But times have changed. Now, younger people are communicating through different social media channels, the latest being TickTock, and these are changing consumer patterns of behaviour. People are less inclined to spend their time trawling retail outlets to try and find that special pair of Nike trainers when they can see their sporting heroes wearing them on videos and also order them easily with a few clicks on their phone. 

So this brought Nike to a change in strategy a few years ago. With a focus towards selling more directly to clients, and in much the same way as the revolution with food and drinks manufacturers as I explained above, Nike have been experimenting with direct consumer channels for years and are looking to expand this. 

By direct consumer channels I mean selling directly from their own website and/or from a Nike store. Nike stores in themselves are an interesting experience. There are a number in Rome and I went into one about a year ago. They are a less a store and more of an experience. This experience feeds into their brand and message around 'Just do it'. It is very impressive and in this way they don't dilute their brand or their profits through third party distribution channels.

This trend which Nike has been developing for years now, is a trend which we could see grow after Covid as shopping habits change even more. As an example, I know a couple in Rome in their 50s who had never used Amazon before the lockdown because they thought it was unsafe. During lockdown they decided to sign up and use it. They are hooked and cannot believe how easy it is and how much choice they have. We already know that retail is being revolutionised but this could take it further. 

Can we imagine a future where we have one login for all retail outlets, supermarkets etc, and when we order from any one of them a delivery is made to a locker installed in or near our home which can be accessed with a secure code? A utopian (or dystopian) future?

If just a 20% shift is created in consumer behaviour as a result of this crisis, or 20% in the way we live and work, this could create an equally tectonic shift in the corporate sector and the way they engage with us. For our money it will create opportunities and also there will be failures. More importantly, we are likely to see an even greater shift to companies who have a strong focus on the environment, social protection and good governance of their companies. 

More than ever our money managers need to be on top of a changing world. Thankfully they are.

If you would like to have a health check on your money for the future, then you can get in touch by contacting me on gareth.horsfall@spectrum-ifa.com or call/WhatsApp on +39 333 649 2356
 
 

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