The pandemic has forced consumers to adapt their spending, with notable shifts toward e-commerce, outdoor recreation and home improvement. But how permanent are these changes? The answer could make or break sectors that have thrived over the past year as well as those counting on a post-pandemic rebound.
Chase Bethel, senior analyst and portfolio manager with CIBC Asset Management, said it stands to reason that spending will shift back to small retailers and other categories such as travel, restaurants and movie theatres that have been negatively affected. How accurately stock valuations have taken this rebound into account is an open question, though, he said.
“Will the quality of experience be good enough to cause consumers to engage as frequently as in the past?” he asked in an interview last month. “In my view, the biggest unanswered question is: Which industries have truly seen an increase in their total addressable markets due to Covid and which were just temporary beneficiaries? Said another way: Have we been in this pandemic long enough to permanently change consumer habits?”
Pandemic beneficiaries may hope so. Bethel said somewhere between US$500 billion and US$800 billion in U.S. spending has shifted away from traditional channels. Clothing and accessory stores have suffered; hardware, garden and sporting goods shops have thrived.
Companies such as Polaris Inc. and Bombardier Recreational Products Inc. have seen “incredible growth” in the sales of jet skis, snowmobiles and off-road vehicles, Bethel said.
“Many consumers would have never discovered the power sports industry had it not been for the pandemic and the travel restrictions that it brought about. Now, they own a $10,000 toy,” he said.
The question now is how many of these consumers will devote vacation time over the next five years to using these machines at local lakes and trails versus getting on an airplane for an overseas holiday?
Covid losers anticipating a return to normal should also be cautious. Tim Hortons, owned by Restaurant Brands International, has seen significant sales declines as commuters work from home, Bethel said.
“We can all reasonably expect that there should be some growth in sales once we return to work. But how many days per week will we return to work?” he asked.
Routines may have changed over the last year: commuters may now be accustomed to making their own coffees on home-brewing systems acquired during the pandemic.
“These are the types of questions that are difficult to answer,” Bethel said. “But, intuitively, I think it stands to reason that we should not accept that so many beneficiaries of the pandemic have increased their addressable markets unless we also are willing to accept that some other addressable markets may have contracted.”
A Scotiabank survey conducted online last month suggested Canadians are eager to return to pre-pandemic activities, but that they may also keep their spending in check.
The survey of 1,500 Canadians found that almost half of respondents said they planned to maintain the elevated levels of saving established during the pandemic.
As for the post-pandemic activities Canadians are most looking forward to, large gatherings with family and friends topped the list, followed by flying outside of Canada and eating at a restaurant in a large group.
This article is part of the AdvisorToGo program, powered by CIBC. It was written without input from the sponsor.