What Stays and What Goes in a Post-Covid-19 World -- Heard on the Street

11/23/2020 | 05:45am

By Aaron Back, Jinjoo Lee and Dan Gallagher

This is the third column in a five-part Heard on the Street series on how the American economy might look once the Covid-19 pandemic is over.

The coronavirus pandemic has transformed the way Americans eat, shop and entertain themselves. In one manner or another, most of these consumer activities have moved into the home and online.

Now, with effective vaccines on the horizon, the most important question for investors is how much never goes back to the way it used to be. The answers will have major implications for swaths of the economy, but they aren't likely to be straightforward. Each affected industry has its own nuances to consider.

In cases where consumers have merely adopted a workaround that is inferior to the real thing, activity should snap back strongly. Happy hours over Zoom, for instance, are no match for an actual night out. But in other cases consumers may find the new way of doing things superior, such as having groceries delivered instead of venturing into a supermarket.

For still other pursuits, like fitness and movies, in-person and at-home options have in fact been in competition for decades, with strong use cases for both. Note, for instance, that more than 1.2 billion domestic movie tickets were sold last year -- about the same as five years before despite the growing onslaught of streaming services. And, according to box-office tracking service the Numbers, average ticket prices actually rose by 12% in that period.

For these sectors, the bigger question might be who survives to meet that demand when it eventually comes back. Several gym chains such as 24-Hour Fitness and Gold's Gym have filed for bankruptcy protection, as have more specialized offerings such as Cyc Fitness, Flywheel Sports and YogaWorks. Among theater chains, AMC Entertainment says it will need to raise additional capital to ensure it can survive until the summer of 2021, which is when Hollywood intends to get many of its delayed blockbusters back into theaters.

Some habits learned during the pandemic are likely to prove sticky. Many Americans have been forced to learn to cook, and those who were already handy in the kitchen have grown more so. This has been a boon for food companies like General Mills, Campbell Soup and McCormick.

Purchases of equipment for food preparation, cooking and storage rose 41% between March 15 and Oct. 31 compared with the same period a year earlier, according to consumer research firm NPD. Sales of metal bakeware, toaster ovens and air fryers surged 57%, 75% and 83%, respectively. Of course there is no guarantee this equipment will continue to be used, as anyone with a seldom-touched bread machine taking up counter space can attest. But it seems a fair bet that a good portion of these investments, and the kitchen skills acquired, will keep at-home food consumption higher than it otherwise would have been.

Among retailers, big-box players Walmart, Target and Costco have been among the biggest winners from the pandemic. That is both because they have the scale to invest in e-commerce and because shoppers have preferred to visit as few places as possible to pick up their essentials. Walmart, for example, saw general merchandise sales in the U.S. grow more than 10% in the six months ended July 31 -- a much faster pace than the 1% growth it managed a year earlier. In some ways, these mass merchants are starting to look more like department stores: Target plans to bring Levi's products across more stores and will start opening cosmetics retailer Ulta Beauty shops inside some of its stores next year.

Department stores themselves, however, seem increasingly unable to figure out just what their value proposition is to consumers. In the quarter ended Oct. 31, Macy's and Kohl's saw sales decline from a year earlier by 23% and 13%, respectively. By contrast, discounters TJX Cos., owner of T.J. Maxx, and Ross Stores only saw sales tick down by 3.2% and 2.4%, despite the fact that they have very little in the way of e-commerce offerings. If the appeal of the "treasure hunt" experience in these stores endures during a pandemic, it will surely resonate afterward as well, especially if the economic backdrop remains weak.

Finally, some categories of bricks-and-mortar retail now face serious online competition for the first time. Furniture, for example, used to be a category that consumers overwhelmingly preferred to see in person. But shoppers have now broken through that mental barrier: Wayfair saw sales increase more than 75% in the six months ended Sept. 30. Similarly, online sales of used cars have taken off, allowing two upstarts -- Shift Technologies and Vroom -- to make public debuts and pushing incumbents such as CarMax to move online more quickly. Retailers in sectors like these can no longer ignore the e-commerce threat.

With any luck, Americans by next summer will be crowding bars and movie theaters once again. But for many merchants, there will be no way to put the pandemic genie back in the bottle. Things will never be quite the same again.

Write to Aaron Back at aaron.back@wsj.com, Jinjoo Lee at jinjoo.lee@wsj.com and Dan Gallagher at dan.gallagher@wsj.com

(END) Dow Jones Newswires

11-23-20 0544ET

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