Economy & Business
What happens when it's all over?
When the coronavirus epidemic finally ends, which beneficiaries will maintain momentum and which business sectors are likely to recover quickly?
By Duncan Levine
When the extent of the coronavirus outbreak in China first became apparent, it set off a panicked surge of purchases of masks, protective gear and hand sanitisers in Taiwan. Taiwanese mask maker, Universal Incorporation, saw its normally lacklustre sales spike 133% year-on-year in February as a result, while authorities had to implement a rationing system and offer support to manufacturers to help ramp up production. As long as the coronavirus pandemic continues, it is reasonable to expect brisk business for mask makers and other hygiene products.
But history has shown that all pandemics eventually peak and gradually peter out. When the dust settles, or, to use a more appropriate metaphor, when the last coronavirus patient recovers and leaves hospital, what will be the lasting impact on business? While there will surely still be a demand for masks, it is hard to see how mask makers like Universal Incorporation will be able to maintain the same momentum. Moreover, for hints as to which business sectors will snap back to life quickly and which will thrive in the long term, it may be more useful to look beyond the short term impacts and instead focus on the trends already underway before the epidemic started.
The coronavirus pandemic, which started in Wuhan, China has since spread globally and prompted lockdowns in several countries in Europe and beyond. Severe travel restrictions by authorities worldwide has crippled businesses in the travel, hospitality and entertainment industry and disrupted global supply chains. But can they recover and, if so, how quickly?
Much has already been written about the huge hit airlines, hotels, tour operators, restaurants, retailers and others in the travel and tourism industry are suffering from the travel restrictions imposed globally since February this year. However, it should be pointed out that the spread of the virus interrupted a trend of enormous growth in the travel and hospitality industry over the past two decades, much of it driven by rising middle classes in Asia.
In the wake of the crisis, some analysts have predicted real carnage in the airline industry. Without state aid, many airlines could be forced out of business within months. If this happens, the survivors would face less competition. As has been seen in the US market in recent years, consolidation and less competition is good for the bottom lines of airlines but bad for consumers as airlines can raise ticket prices and have few incentives to improve services. Adding to the woes of airlines, authorities had been facing increasing calls by the public to force airlines to reduce their emissions. While action on this front may be delayed for now, the issue is likely to resurface when the crisis is over. Upgrading their fleets would add to the costs of airlines, which are likely to be passed on to passengers. At the moment, very few people are flying for either business or pleasure. However, when the crisis ends, even if it becomes more expensive to fly, travelling is popular, both for business and pleasure, and higher costs are unlikely to deter people from flying, enabling those in the industry left standing to recover quickly.
In the meantime, while people are being forced or choosing to spend more time at home, there will be some beneficiaries. Food delivery companies are seeing booming business as more people choose to eat in rather than out. According to a report in the Taipei Times, Deliveroo’s delivery orders increased 45% in February while Foodpanda said that its orders in January increased five-fold. We will have to wait until after the crisis is over to see whether this trend is sustainable. However, as with the case of air travel, it is hard to imagine people will not go to restaurants when they feel it is safe to do so. Meeting with friends or family for a meal is, after all, one of life’s small pleasures.
Another beneficiary of staying at home is the online retail sector. Amazon reportedly plans to hire 100,000 extra full and part-time staff to handle the surge in demand caused by the coronavirus pandemic. The company said it would invest US$350 million to increase the hourly wages of its workers, warehouses, delivery infrastructure and grocery stores, including its Whole Foods Market. The increase in new recruits would bring the company’s total number of employees, excluding contractors, to over 900,000 globally.
Here in Taiwan TV and online shopping company Momo.com posted a 26% increase in sales in the first two months of the year. The company itself attributed the strong growth to the spread of Covid-19, which led to consumers increasing their online purchases, especially household cleaning and personal hygiene products. Rival PChome Online also posted record-high revenue in February, up 27% year-on-year. However, the trend towards online shopping has already been going on for many years. Anecdotal evidence from the current crisis shows that people are shopping more both online and offline to stock up on essential items in case there is a shortage. It is therefore not clear how much the recent uptrend for online retailers can be attributed to the coronavirus or the capture of market share from rival online retailers as well as traditional retailers. We should therefore expect the same market dynamics to continue to play out after the pandemic.
Other industries benefitting from people having to stay at home are online learning and gaming. The online learning market is very broad and deep with low barriers to entry, which makes it difficult to predict winners. Moreover, it is too soon to tell how much market share online players will be able to capture from traditional schools when there is no healthcare threat that is giving them an advantage currently. In terms of gaming, International Games System Co., a Taiwanese company which plans, designs, develops, manufactures, and markets software and hardware for arcade games, PC games, and internet on-line games, posted a 101% increase in sales in the first two months of 2020. This is probably not a one-off boost from Covid-19 since the online gaming market, which allows players to play online in real time with anyone in the world, was already booming. With ever-improving online gaming technology, faster internet speeds and growing popularity, regardless of the coronavirus, it is probably safe to say that online gaming has a bright future.
The coronavirus pandemic has forced people to stay away from the office and work remotely. However, once again, the trend towards remote working was already underway before Covid-19 but for different reasons – in order to give both employers and employees more flexibility and convenience. The coronavirus outbreak tested the contingency plans of companies and the technologies that had (or had not) been put in place to enable remote working. However, as pointed out by ECCT directors in our article on contingency planning, remote working is not suitable for all jobs and it will never be a substitute for face-to-face interaction.
The need for keeping people apart has been a boom for companies providing the technology for video conferencing and related services. However, it should be pointed out that, companies like California’s Zoom Video Communications, had already been enjoying a boom in business as more and more businesses turned to video conferencing to reduce travel in response to concerns about climate change as well as to avoid having to live in neighbourhoods with overpriced housing, such as Northern California where Zoom is located. The coronavirus epidemic certainly added impetus to the shift towards holding more online conferences and webinars. It is a safe bet that the trend towards more online communications will continue. However, there may be a limit as to how much video conferencing will replace face-to-face meetings and events. Eric Yuan, the founder and chief executive of Zoom, has said that it is too early to tell if Covid-19 will change people’s behaviour in this regard.
Then, there is the question of large-scale gatherings. Even if we are able to stop people-to-people contact, do we really want to do this? People are social animals, who, with rare exceptions, need contact with others to maintain mental well-being.
Saudi Arabia halted travel to the holiest sites in Islam due to concerns over the coronavirus epidemic, just months ahead of the annual hajj pilgrimage. The hajj is a pillar of Islam, required of all Muslims once in a lifetime. Meanwhile, last week the Vatican cancelled public participation at pope's Easter events in April, which normally draw tens of thousands of Catholics. Here in Taiwan organizers of the Dajia Matsu Pilgrimage, the largest annual religious procession in Taiwan, postponed the event in late February for the same reason. These moves, while drastic, are all seen as only temporary. It is inconceivable that religious gatherings will not resume once the pandemic is over.
Then, there is the enormous economic cost that would be felt if we prevented people from mingling with one another. Besides the hospitality industry, the impact of restricting large gatherings of people extends much further. So much of the economy depends on large gatherings. Cancelling trade shows, conferences and seminars would have a huge knock-on effect for jobs of organisers and for businesses hoping to promote and expand their activities.
Just over the past month, there have been a slew of cancellations of events involving large congregations of people. On 12 March, New York’s Broadway theatres became the latest mass entertainment venues to temporarily shut down over fears of the spread of the coronavirus. Cinemas have been shuttered almost everywhere. However, a word of caution to those predicting the demise of live theatre and cinema. Pundits have been predicting the death of cinema ever since the invention of television. Their voices grew louder with the advent of cable TV and video rentals. Yet, people still went to the movies in droves. Their voices reached a crescendo with the rise of video streaming on demand. Yet, in the age of Netflix and wall-sized high-definition TVs in people’s living rooms, box office sales still set new records in 2019, indicating that people still crave the communal film-watching experience. This seems to suggest that when the crisis is over, people will go back to cinemas.
Looking at sports, almost all major sporting events have been postponed globally, including professional football, tennis, golf, basketball, baseball, rugby, cricket and hockey tournaments. California’s Disneyland theme park is closed and Live Nation, the largest events company and concern promoter, has told artists, including Billie Eilish, to end their tours. Even New York’s St Patrick’s Day parade, one of the city’s longest-running and most celebrated events, has been postponed for the first time.
This comes as the music industry is only just beginning to recover from the devastating impact of the transition from analogue CD sales to digital streaming. Only the most high profile artists make any significant money from digital streaming, which means that most musicians have to rely on live performances to earn a living. If live concerts are banned indefinitely you would be depriving them of their only viable means of income, not to mention the thousands of roadies and other people dependent on touring artists. Are we really willing to end live concerts forever? I think not.
Here in Taiwan the Taiwan External Trade Development Council (TAITRA) has postponed all local trade shows and exhibitions scheduled for prior to May. This includes the Taipei Cycle Show, the Taipei International Sporting Goods Show, the Taiwan International Boat Show and the Taipei International Gift, Stationery and Culture Creative Show, the Taipei International Auto Parts and Accessories Show, AutoTronics Taipei, the Motorcycle Taiwan Show and the Taiwan International Fastener Show. At the moment, Taiwan’s biggest annual show, Computex Taipei, which is scheduled to be held from 2-6 June is still on but organisers may have to reconsider if the coronavirus is not brought under control within the next couple of weeks.
The cancellation of these events has enormous ramifications. It is not just the organisers that will suffer. The small businesses that provide services to trade shows from stall builders to printing and catering services will all have no revenue streams, which may force them to lay off staff or even shut down.
Much of the revenue from sports events comes from ticket sales. Even if sports games could be played in empty stadiums and filmed and broadcast live, it is questionable how appealing it would be to sports fans to watch their idols playing a match played without the electric atmosphere that only a live audience can create. The International Olympic Committee has ruled out staging the Tokyo Games behind closed doors because insiders say that would be anathema to the philosophy of a movement that seeks to bring people across the globe together in celebration of sport. This sentiment is echoed by professional sports stars. US National Basketball Association (NBA) star LeBron James has been quoted as saying he will not play in an empty stadium after NBA warned teams to prepare for games without spectators due to coronavirus crisis. James was reported as saying that he plays for his fans and would not play without them there in person.
In the same vein, if a comedian tells a joke and there is no one there to laugh at it, is it still funny? Perhaps, but the experience for the comedian is surely much less gratifying. Last week New York-based late show host, Steven Colbert, performed his show without the normal live audience after city authorities banned live audiences from television shows. Watching the highlights on YouTube, the jokes were just as good but there is definitely something missing without the sound of laughter and the visible reaction the joke teller gets and the vicarious pleasure the viewer gets at seeing this reaction when a joke hits home.
It is hard to imagine a world where all travel and large gatherings would be halted indefinitely. They are just too much a part of our DNA and too important to the economy. It is therefore inconceivable that we will not see a return of large-scale gatherings once the pandemic is over.
While we are in the thick of the coronavirus epidemic, it may be hard to imagine a return to normal. However, predictions of the end of life as we know it may be a little premature.