While not every change that has come about in response to the Coronavirus pandemic will be permanent, it is also very unlikely that the world will go back to exactly how it was before the virus. In our most recent post, we looked at some of the trends we see continuing on in the Post-COVID world, and how to position your portfolio to benefit from them. This time, we are taking a look at the downside of those trends; which companies and sectors are likely to struggle and how to avoid them.

Online Ordering

In our last post we talked about the growth in online retail over the past few months. This trend was already well in place leading into the pandemic, but recent events have pushed it forward by years. While this benefits companies like Amazon, it will likely weigh on companies that require a large physical footprint and also those without a strong online offering. Going forward, companies will have to have strong, multi-channel capabilities to deliver goods to consumers. Businesses that continue to rely solely on a large physical footprint and in-store shopping experience, may find themselves lagging their peers.

A good local example of a business that has been negatively impacted by the shutdowns and a lack of an online alterative is Sail. Sail, a large Canadian outdoors gear and equipment retailer, recently entered bankruptcy and announced its intention to close six stores. Sail was significantly impacted by the recent lock downs as it was unable to sell merchandise from its physical locations and its online shopping platform was not sufficient to meet customers' demands. Companies like Sail will have to find a way to adjust to the current reality, or risk losing market share to adaptable competitors.

Remote Working

While many companies will likely benefit from having a larger portion of their workforce working remotely (assuming that workforce can maintain certain standards of efficiency), there are plenty of negative implications to this trend as well. As businesses give up some of their physical footprint as part of the shift towards remote work, those companies who supplied that footprint will likely suffer. Real Estate Investment Trusts, particularly those focused on the office and retail sector, may find themselves struggling to collect rents as businesses close and companies have less need of office space. A good, if extreme, example of this is Shopify's recent announcement that the vast majority of its workforce will shift to online work. Shopify currently leases ten floors in the middle of downtown Ottawa. Assuming Shopify is able to follow through with this plan, they will be unlikely to need that much space going forward.

Social Distancing and Leisure

Even after the restrictions on social gatherings are eased, it is unlikely that people will rush out to put themselves in close contact with others, particularly if no vaccine is yet available. This means that businesses that rely on large gatherings of people will likely find themselves challenged. This list includes restaurants, sports arenas and movie theaters. Most restaurants are privately owned, and those that are public will be able to continue with some form of lower capacity service. Arenas are usually also privately owned, and are unlikely to impact your portfolio. Many movie theater companies, however, are publicly owned and are likely to see significant declines in attendance once social distancing measures are taken into account. Given the moderate success some distribution companies have had in releasing movies directly online during the lock down months, movie theater chains may soon find themselves in real trouble.

Travel is another area that will likely continue to experience challenges. From April 2019 to April 2020 air travel in the U.S. was down 90% year over year. While it has rebounded somewhat over the past couple of months, many people have already written travel out of their 2020 plans. It is unlikely that air traffic volumes get anywhere close to pre-COVID levels in the coming months and, similarly, cruise ship operators will likely be waiting a long time before bookings bounce back.

These are just some of the areas we are looking at in the context of who may or may not struggle in the post-COVID world. We suggest taking a look at your portfolio to see if you have exposure to any of these sectors. If you do, or if you'd simply like to review your portfolio as a whole to make sure it is well positioned for the new reality, we will be happy to discuss alternatives with you.