During the corona crisis we were forced to shift an even bigger share of our lives from offline to online, providing a big boost to the already established trend of digitalisation. How much of this boost will last as we are learning to live with the virus? We believe the so-called stay-at-home economy is here to stay.
The stay-at-home economy became the name of the game during the lockdowns, not just for consumers and companies but for investors as well. We believe it should stay well supported for now as many are still reluctant to go out again and have not returned to their offices yet.
While many of the companies which are driving the digital disruption are sound longer-term growth stories, some have been more in the investors’ focus than others during the crisis, lifting valuations to lofty levels – in particular if we assume that the staying-at-home will not be the new normal.
In the following, we present the key trends we foresee in the areas work, entertainment and shopping:
As we believe a blend between working in the office and working from home will become the new normal, employers need to provide a proper remote setup. Software which allows to connect with colleagues or clients and to seamlessly work from home should stay in high demand.
Activities such as video streaming or video gaming became more popular as we spent more time at home. Companies offering such services have seen rapid rises in users but growth has slowed or even reversed since the lockdowns were lifted – simply because there is less time.
That said, the streaming industry has entered a phase of increasing competition. The early disrupters are getting disrupted by the established players, which have launched their own offering at a very competitive pricing, leading to a scat-tered landscape. Meanwhile, attractive content is getting more costly, raising doubts about margins. Competition in the gaming industry is less intense, as certain games have become their own brands, relying on an established and enthusiastic fan base. In-game monetisation adds to better growth prospects.
Retailers which did not have a proper online presence were already struggling well before the corona crisis. Last year, more than 9000 shops were forced to close in the US and this year’s number will be even higher. Consumers have become accustomed to the convenience and greater choice of the online shops, also because logistics have been improved immensely, resulting in shorter delivery times. That said, some will still revert to their retailers of choice, suggesting that the excessive levels of online shopping experienced during the lockdowns are unlikely to last.
In the longer-term, up to 25% of global retail sales should shift from offline to online, leaving a lot of growth potential. Some of the key challenges online shops need to overcome in order to turn the expected revenues into profits is to reduce return rates and to develop a competitive advantage by providing a personalised offering as well as a true shopping experience. As the number of online orders picks up, logistics companies should benefit as well. However, competition in the segment is immense and in order to have an edge, companies need to be cheaper, faster and more reliable.
What is going on in the markets? Julius Baer’s experts share their views.