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Chase Bethel, portfolio manager and analyst covering consumer and telecom at Portfolio Management and Research, CIBC.

Making reference to the final instalment of our three-part series on the consumer and Covid-19, which focused on how spending patterns have changed, we saw three key things. They were uneven spending, a focus on the home and the shift to e-commerce.

First, in terms of uneven spending, there’s more than a single dimension to it. We’ve generally seen large retailers fare better than small businesses due to both the ability of the former to lean harder into e-commerce and also in some instances due to government policies.

Another dimension of unevenness has been brought about by lower consumer mobility and certain categories of spending being unavailable to the consumer.

Our analysis of personal consumption expenditures shows that roughly $500 to $800 billion in the U.S. has had to shift from traditional channels into different channels. And so, for example, when we looked at the recovery in retail sales from June through December 2020, sales at clothing and accessory stores declined by a high-teens percentage, whereas building materials, garden, and sporting goods and hobby stores increased by a high-teens percentage.

Naturally, this provides a nice segue to talk about the focus that we’ve seen on the home and on outdoor spending. Unlike other past crises, this pandemic is different in that it has increased the importance of the home. It is now serving multiple purposes, with many of us working from home. And for those of us with children or dependents, we are now learning from home as well.

Accordingly, when we see an increase of almost 19% in spending at building materials and garden stores from June to December, this all fits with that focus. Interestingly, even within this trend, there has been strong growth in the do-it-yourself segments of home improvement, whereas consumers appear to be delaying the big-ticket renovations that require pros to come into the home.

Then, in terms of the focus on outdoor, consumers have been looking to escape to the trails, roadways and waterways that are available for them to traverse. So, we’ve seen spending on sporting goods increase rapidly. Along with this, sales of leisure goods and power sports have also vaulted. So, think about boats, jet-skis, RVs, off-road vehicles and snowmobiles. All have seen robust sale trends that by all accounts continue apace even through April of 2021. It is no longer a question of whether there is demand for these goods, but rather whether supply chains can deliver sufficient units to meet the current demand.

The third key theme has been online spending. One measure that we track is the penetration of sales by non-store retailers as a percentage of total retail sales in the U.S. By this measure, the growth and penetration rate of non-store retailers, or e-commerce, has increased at double the pace in 2020 relative to the historic annual average.

What’s more, not only have consumers increased their adoption in categories that had already seen strong online growth, they also began to give permission for grocery stores and other grocery retailers to provide their groceries through e-commerce. Grocery, in our view, is the last frontier for e-commerce. So, seeing higher consumer adoption there speaks to a change in consumer mindset. According to a recent survey by C.H. Robinson, 54% of U.S. customers bought produce online for the first time during the crisis, with seven out of 10 saying they will continue to do so even after the pandemic is over.

In terms of how consumer spending will change this year as more people are vaccinated, I think this is a very important question. It stands to reason that as mobility improves, spending will shift back to small retailers, back to the categories that were negatively impacted, like travel, like restaurants, like movie theaters, and hair and nail salons.

Yet, because the stock market is forward looking, there’s an open question about the extent to which valuations currently take this into account. For sure, there is a lot of pent-up demand to experience some of these leisure activities. But will the quality of experience be good enough to cause consumers to engage as frequently as in the past? 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?

Let’s take a specific example. Companies like BRP and Polaris in the power sports industry have seen incredible growth in the sales of their products: jet skis, snowmobiles and off-road vehicles. 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. So, in the coming five years, how many of their vacations will now be spent going to a trail or to the waterfront within their local areas as opposed to getting on an airplane and taking a trip to some destination?

Here’s another example. Tim Hortons, which is owned by Restaurant Brands, has seen sales declines in the mid-teens to low twenties as more working from home has interrupted office routines and also store traffic in urban locations. 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?

And what will we do on the days that we work from home? Will we still go to a Tim Hortons drive away, or will we use our at-home brewing systems or an instant coffee? Will those things have more prominence in our daily routines? And will we now go to Tim Hortons for lunch instead of for breakfast on the days that we work from home?

These are the types of questions that are difficult to answer, 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.

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