The COVID-19 pandemic has led to all sectors of the global economy facing uncertainty and disruption as businesses navigate uncharted waters. But against this backdrop of falling share markets, job losses and extended lockdown periods, some companies are thriving while others have shown remarkable resilience and flexibility to remain competitive.
With Maia Financial focussed on multiple sectors, we have experienced everything from the high demand being seen in manufacturing / logistics to the difficulties faced by hospitality businesses.
Within the supply chain we are finding that land freight is doing really well while air freight is not in a good place at the moment. This domestic focus can also be seen with logistics and courier companies as, with everyone working from home, they’ve never had a busier time. And as lockdown boredom sets in and in-store shopping options remain limited, consumers are ordering far more online.
But while the success of e-commerce, couriers, freight and logistics companies – especially domestically – is inspiring, we must be careful to distinguish between businesses that are able to show resilience in the face of a pandemic from those that are ‘recession-proof’.
One of the key metrics at the moment is being invested in technology and automation. There has been a big push in the logistics space to automate warehouses, especially in the US and Europe, and this is a big advantage for those running with reduced staff numbers because of social distancing. A strong online presence is another key attribute.
Even among sectors which have been relatively unscathed so far and which may have significant scale, very few organisations are recession proof. Companies will need low debt, good cash flow and strong balance sheets – with the help of the Federal Government’s stimulus packages – to have the best chance of riding out what may be a prolonged downturn. We have been impressed with the proactive approach being taken in some sectors.
There are some companies that have moved quickly to bolster their cash balance; be that by furloughing staff or renegotiating rent. But in the longer term, sectors like hospitality will be dependent on what people do after the lockdown period is rolled back. Will people want to take holidays domestically and have the money to do so? The mindset that consumers have coming out of lockdown will have a massive knock-on effect.
The long-term health of the retail sector will be all the more crucial given that giant supermarket retailers Coles and Woolworths took on thousands of additional staff in March and April, in many cases employing Australians who no longer had jobs in the hospitality or aviation sectors. However, for those smaller retailers frantically spending vast sums of money to get their online shopping infrastructure to market, the writing is on the wall.
For some organisations, it’s now too late to think about how to bounce back. The required setup costs a lot of money, especially for those with no digital presence. It may be the case that the weaker companies cease to trade while those that have already invested come out stronger.
From what we are seeing in the market, the trend towards selling assets outright and renting them back to free up cash reserves is gaining pace. Where assets were delivered within the last 90 days, it is possible to return that recently-spent capital into the business.
Generally, the acquisition of new equipment is being put on hold or being delayed by the supply chain, especially if it is coming from abroad. Others are finding that a decades-long focus on supply chain optimisation to minimise costs, reduce inventories, and drive up asset utilisation has removed buffers and flexibility to absorb disruptions and recover from global shocks.
Consolidation is inevitable and this may be particularly pronounced in the hospitality sector. Many of the larger hotel chains will be able to ride out the travel bans with the knowledge that they might be able to restructure when the expected wave of mergers and acquisitions (M&A) allows them to enter new markets or beef up market share.
However, with global M&A activity down nearly 36 percent in the first quarter of 2020, according to financial platform Dealogic, sheer survival is the first order of business as the economic downturn depletes revenues across the board. Companies may need to emerge with a newfound caution especially in industries where consumer behaviour may have altered significantly.
Hopefully this is a once-in-a-hundred-year event, but companies should heed the warning to be more diverse and not just sit there comfortably, especially in the retail space. It is also the time to preserve your brand.
By putting your customers’ interests first, this can be a time for your company’s brand to lead. Even though you might be taking a short-term hit to your bottom line, putting a flexible pricing or refund policy in place, and finding other ways to help your customers through this crisis will be beneficial to the long-term health of your company.