Pandemic Business Losers and Winners

Economically, the worst year of the lockdowns was 2020.  According to the US Congressional Research Service, in 2020 the global economy shrank by 3.2%, and global trade by 5.3%. In the US, the decline was 2.4%.  Lockdowns distorted different economic sectors both up and down and drove increases in inequality.  But overall, by the end of 2021, the US economy, at least, had substantially recovered, and in fact was experiencing significant labor shortages, due in part to disincentives to formerly employed workers from returning to the workforce.  Worldwide, it now appears that vaccination rates, more than lockdowns or mask mandates, have been the main drivers of both economic recovery and improvements in COVID-related health outcomes.

The major losers of the pandemic are the smaller, undercapitalized, so-called “non-essential” businesses, such as bars, restaurants, theatres, sports venues, many independent tradespeople, mom-and-pop retail stores, and smaller travel and tourism operators. In my home city, San Francisco, for example, some 40% of restaurants have gone out of business. These businesses are thinly capitalized and lacked the financial reserves to get through the pandemic. Many had to close for extended periods, and even when re-opened, incurred additional expenses: reconfigure for take-out or lower density, extra sanitation procedures, etc.

The lesser losers of the pandemic are the larger but still “non-essential” retail chains – for example, department, apparel, furniture, and sporting goods chains, and hotel and hospitality chains, larger travel and tourism operators, airlines, and cruise lines. Lockdowns and border closures have disrupted the operations of global logistics firms such as DHL. At the same time, China continues to maintain draconian lockdowns. All these businesses closed or lost substantial revenues, and incurred the additional expenses I mentioned, but generally had more in the way of financial reserves or access to capital to survive the lockdowns, or they received bailouts.

The relative winners of the pandemic are businesses with knowledge-worker-intensive workforces, whose employees could work from home, and which could thus continue operations even during the lockdowns. The IT sector, banking, insurance, consulting, engineering, law firms, marketing, architecture, and design are the first that come to mind. But even these businesses suffered, as their business and consumer customers had fewer of the projects and transactions on which their knowledge-based revenues are based.

The major winners of the pandemic are all parts of the digital economy that have received a major boost, in both customer acceptance and technological advancement: online retailers like Amazon, online delivery services such as Instacart, online conferencing services such as Zoom, online education services such as Coursera, online health care, education, and entertainment, have all been major winners; also, businesses integrating online elements with conventional brick and mortar and in-person transactions, such as ordering lunch online from your corner sandwich shop, have seen a major boost; backend information service providers –  again Amazon, also Microsoft, IBM, and Apple; brick and mortar wholesalers and retailers, such as Costco, that were deemed “essential”; charter schools and private schools as parents got to see first-hand how dysfunctional government-run schools were.

As you can see, the winners of the pandemic shared two things in common: “online” and “essential”. Thus, the hybrid workforce, mixing in-office work with work at home, now appears to be long-lasting, if not a new standard, for business professionals. However, we should be grateful for technologies such as Zoom.  An estimated 40% of the US workers representing 60% of GDP were able to work remotely. A century ago, with the Spanish flu, those numbers would have been 0% and 0%.  If we have a similar pandemic ten years from now, in 2032, perhaps 60% of US workers representing 80% of GDP will be able to work remotely thanks to technological innovation.  Technology is an unsung facilitator of economic resilience and stability.

Lockdowns have had the unintended consequence of making well-capitalized, high market cap companies even more competitive and valuable, and less-well capitalized companies less competitive and valuable.  Larger retailers such as Amazon, who can afford to automate operations with investments in robotics and enterprise software, thereby increasing productivity and scalability and reducing costs, have gained an advantage.  As so often happens when politicians, rather than markets, drive such decisions as which products, services, suppliers, and businesses are essential or non-essential, the rich become richer, and the poor become poorer.  Increased inequality is indeed much a problem of our own making.