Unexpected Winners in a COVID Economy

The last six months have been incredibly tough for the global economy. COVID-19 has infected over 7 million people in 185 countries and has sadly killed over 400,000. The virus has also caused the loss of millions of jobs worldwide. As a result, the global economy has run into extreme difficulty. The International Labour Organization has predicted that there will be approximately 305 million job losses due to the coronavirus pandemic.

The stock market reacts to the crisis

In March, the Western world effectively closed down as one-third of the world’s population lived under some form of protective lockdown. In late March, stock markets across the globe suffered huge losses due to the sudden sell-off tied to COVID-19. The Dow Jones and London’s FTSE 100 saw their biggest quarterly drops since 1987, which understandably panicked many involved in the stock market.

The Dow Jones dropped 23%, and the FTSE 100 fell 25%, with economists warning that the effect of the virus on the global economy is likely to be worse than the 2008 financial crisis which saw the loss of millions of jobs. In the face of the pandemic, industries around the world have called for urgent policy measures to support both workers and businesses. While some countries have implemented measures to keep specific industries afloat, others are fending for themselves.

Travel, tourism and hospitality suffer

As expected, the industries that have been most affected by the coronavirus pandemic are the travel and tourism, airline, hospitality, entertainment, leisure, and transport industries. From the 20th April to 31st May, airlines saw an 80.8% decrease in spend performance compared last year.* Travel and tourism saw a decline of 81.1% in the same period as travel restrictions and lockdowns were enforced in several countries globally.* The sharp decline in searches for both flights and hotels can be seen in search data as the pandemic began to take hold of the UK in late March.

Search demand interest over time: Flights (blue) and hotels (red)

As a result of the turmoil the global economy is facing, many will enter a recession this year. The International Monetary Fund has described the sudden decline as the worst since the Great Depression of the 1930s. The devastating nature of the COVID-19 is evident when compared with the Global Financial Crisis ten years ago. In 2009 the GDP growth globally was -0.1, and the predicted GDP growth during the coronavirus crisis is -3.0. As a result, millions of businesses are struggling financially.

The furlough scheme now supports almost 9 million workers as the economy suffers

The UK Treasury recently announced that the government’s UK furlough scheme is now supporting 8.9 million workers. Between the 23rd April and 7th June, the number of furloughed individuals more than doubled. The scheme paid workers 80% of their salary, ensuring that the businesses could survive the crisis. As the economic situation became increasingly dire and feelings of uncertainty grew, UK spending shrank by more than a third in April as shops shut, and consumer spending fell by 36.5%.

Who are the winners in the COVID economy?

While many businesses are struggling to make ends meet, some are performing well. With millions of people staying at home, specific industries have seen increased sales as customer behaviours shift. There is hope on the horizon for those searching for the ideal private equity deal. The general merchandise, hardware, music, and computer sectors are performing better than they were this time last year. Digital data from card transactions and searches have confirmed that the above categories are ideal investment opportunities.

UK Spend Performance, 2020 vs. 2019 year-on-year

Demand increases for general merchandise

The best performing sector in the UK is general merchandise, day-to-day items that are not groceries. Goods classed as general merchandise would be batteries, appliances, toys, and more. General merchandise has seen considerable growth since the coronavirus pandemic began, with a year-on-year increase between 63-70% from late April to late May.* Shoppers are buying more goods online due to the closure of brick and mortar businesses. For the week of 26th May to 1st June, eCommerce sales were 40% higher than the previous year.

Search data reveals that searches for general merchandise have increased since the UK went into lockdown on the 23rd March. For example, searches for blenders increased significantly in late March as more people started working from home or were on furlough.

Search demand interest over time: blenders

Searches for toys demonstrate increased demand for general merchandise. The demand for toys grew throughout 2019, spiked at Christmas, and then dropped until late March 2020. Searches for toys increased significantly when the schools were closed and the lockdown started.

Search demand interest over time: toys

Digital data from card transactions and searches suggest that those who do not usually buy goods online have opened their minds to eCommerce in the wake of the pandemic.

Consumers spend more in hardware and homeware stores  

As more people stay at home, many turned to home and garden repairs, possibly aided by the warm weather in late May. The UK spend performance on hardware stores increased by 18% from 11th May to 17th May. Spend then increased again over the next two weeks to 35% from 25th May to 31st May.* Hardware stores are not the only businesses to see an improvement compared to the same period last year. Home furnishings and appliances have seen an increase over the last few weeks. This is despite the 20% reduction in salary for furloughed workers in the UK. From the 18th to the 31st May, home furnishings and appliances saw an average increase of 14%.*

Searches for ‘home decor’ and ‘homeware’ have also increased since the UK went into lockdown into late March.

Search demand over time: home decor

According to search data, searches for the term ‘gardening’ have almost doubled since this time last year. The upward trend began in line with the enforcement of the lockdown.

Search demand interest over time: gardening

Digital data has shown that those who are spending more time at home have taken it upon themselves to make some home and garden improvements while they have free time.

Music and computers are in high demand in the age of home working

Before COVID-19 became a threat to the physical workplace, only 1.7 million out of 32.6 million people worked from home in the UK. The government lockdown in late March saw millions of people working from home, many for the first time. This may partly explain the significant increase in goods bought from music and computer stores, as many workers required computers to be able to work from home efficiently. In March, 46.2% of UK employees worked from home. This shift from the office to working from home is clear from the sudden increase in computer/laptop sales. From 20th April to 31st May, there was an average increase of 42.8% in spend performance on both music and computers.*

In early March, several British companies reported that they were struggling to get hold of enough laptops required for staff who needed to work from home due to the pandemic. According to search data, the demand for laptops increased suddenly in late March. However, the demand for computers has remained relatively stable. Workers need portable devices that they can continue to use even after lockdown is lifted, as many will choose to work from home more often than they did pre-pandemic.

Search demand interest over time: computer (blue) and laptop (red)

The consequences of COVID-19 will have lasting effects when it comes to remote working. As previously mentioned, thousands more workers will choose to work from home. This will continue even when the COVID-19 crisis is a thing of the past. For this reason, investing in computer companies at this time is recommended.

eCommerce is thriving

It is crucial to point out that these industries are thriving primarily because of their online presence. UK eCommerce sales have boomed since the crisis began. Sales grew by 168% in May compared to the same period last year. As people are confined to their homes, the necessity of having items delivered to their door has never been more apparent. Amazon shines a light on the value of eCommerce. It also demonstrates the world’s collective love of general merchandise. The company’s stock price has climbed over the last couple of months as the company saw a “major surge” in demand due to COVID-19. What this crisis demonstrates is that eCommerce companies are the future, and investing in them is recommended.

Digital data from card transactions and online searches has demonstrated that certain industries are still ripe for investment, even in times of economic difficulty. It is unknown whether a second COVID-19 peak is on its way. If it is, the above categories are the best choices for investment. General merchandise, hardware stores, homeware, music, and computers will not go out of fashion. Even after the crisis subsides and a vaccine is found and administered. As they say, old habits die hard. Our reliance on homeware, computers, and general merchandise will continue post-COVID.

Read our range of articles and reports to find out more about which industries you should be investing in.

*Data sourced from Fable Data, UK & Germany Consumer Economy.