What businesses will be hardest hit by the coronavirus?

Photo by Tim Mossholder on Unsplash

While all industries have been affected by the COVID-19 pandemic, it’s clear that some will bear the brunt of the downturn much more than others. Some sectors will be able to rebound quickly and may even see a boost from pent-up demand and government stimulus while others will take many months if not years to recover. Making predictions is fraught in such an evolving situation, however, some early trends are beginning to emerge in New Zealand and around the world.

The lockdown winners

In New Zealand, the industries that have held up to date according to GDPLive include essential utilities like electricity, gas, water and waste services, financial and insurance services and public administration and safety. Globally, streaming services like Netflix and video conferencing applications like Zoom have seen a huge boost in subscriber numbers. Others benefitting from the crisis are e-commerce marketplaces like Amazon, home delivery services and pharmaceutical companies working on testing kits and vaccines.

Video conferencing

As millions of people around the world have been encouraged (or instructed) to work from home, businesses have been relying on video-conferencing to keep workers connected. Zoom has been a clear winner, according to CNBC with 200 million daily users in March, up from just 10 million in December. Daily downloads for the app increased 30 times over based on year-on-year figures.

Online entertainment

A ban on mass gatherings that could last for many more months plus the fact that people are spending a lot more time at home has seen a huge spike in demand for streaming and online gaming.

Home delivery services

Home delivery services have struggled to keep up with the enormous spike in demand precipitated by the lockdown. This demand is likely to continue to build as more goods become available online and while people are still encouraged to stay at home and socially distance.

In Australia, Uber is extending beyond its core taxi and food-delivery services with a broader courier service for packages, medication, and pet supplies.

The losers

Airlines and cruise ships

The effect of the pandemic on the international travel industry has been devastating and dramatic. Airlines will be severely affected by the ongoing border controls which will effectively eliminate international tourism for the foreseeable. The decrease in visitors to New Zealand from China, in particular, will be a significant blow for the industry, given Chinese tourists represent 10.5 percent of total visitors annually.

The International Air Transport Association IATA has said it expects airline passenger revenues to drop by more than half this year and warned that more than 25 million jobs in aviation and related industries are at risk.

The cruising industry has been particularly affected by the pandemic, being associated with many of the early missteps with country border controls. According to the Telegraph, all major cruise lines have now suspended operations. Although at this stage they all propose to restart by mid-year this seems optimistic.

Accommodation and Food Services

The restaurant industry was one of the first industries to be impacted by coronavirus as the government moved to close all restaurants, cafes and bars when alert level 3 was implemented. While some will be able to take advantage of meal delivery and takeaway services as the restrictions reduce, is unlikely that demand will be at the same levels they previously enjoyed. Hospitality NZ President Jeremy Smith told the NBR he predicts up to 70,000 jobs could go from the sector and a quarter of businesses were unlikely to survive.

The hospitality and particularly the accommodation industry will also be heavily affected by reduced international tourism. IBIS research estimates that international visitors account for more than 30 percent of the hotels and resorts industry revenue.

Tourism

Ongoing travel restrictions and a reluctance to travel may mean a permanent dislocation for the tourism industry which pre-crisis employed 8.4 percent of the New Zealand workforce. According to Foreign Policy Magazine, six of the world’s top tourist destinations (by travel receipts) are ranked in the top 10 for coronavirus cases, indicating a potentially strong correlation between rates of travel and spread of the virus.

The opportunity for the New Zealand tourism industry post-pandemic is to recalibrate as a high-value and sustainable model servicing the domestic market, then gradually expanding to the Pacific Islands and Australia.

Events Industry

The pandemic has effectively shut down the event industry as public gatherings and venues are restricted or closed from alert level 1. The latest survey from the NZ Events Association (NZEA) estimates a loss of approximately $100 million for an industry that previously contributed half a billion dollars per annum to the New Zealand economy. The medium-term outlook is also grim as large gatherings are likely to be banned in most countries until a vaccine is widely available.

Bricks and mortar retail

With shops closed in levels 3 and 4 and people largely restricted to their homes, traditional retail is in crisis and will take a long time to recover unless they can quickly move online. According to StatsNZ, March showed heavy declines in purchases in clothing and apparel and consumer durables. Some retail activity was higher than normal as consumers stocked up on food and personal care items, but this spike in expenditure is likely to go back to usual levels in the coming months as spending normalises. From there, consumers who have become accustomed to buying online may permanently adjust their purchasing behaviour.

As we move out of Level 3 the full ongoing effect on a number of industries will become clear, such as:

  • Non-essential healthcare providers, such as GPs and Dentists, who will still present a greater risk of exposure to the virus.
  • Clothing and furniture retailers as these are largely discretionary purchases. Winter season clothing sales are likely to be particularly affected as people need less new season clothing when they are still spending most of their time at home.
  • Commercial real estate, particularly open plan and densely-packed office space may suffer as businesses grapple with ongoing physical distancing requirements for customers and employees.

What happens next?

Reflecting on which businesses and industries will benefit most as the restrictions are loosened, Business Insider suggests in the US at least, those industries that shut down last are also likely to be the ones that will come back first. This indicates manufacturing and construction will be standouts. In New Zealand, the concern is whether government-funded infrastructure projects will be sufficient to balance the cancellation of construction projects and the resulting loss of construction companies.

Once we move into Level 2 for a sustained period the new ways of working and living are likely to become entrenched. At this stage, businesses can come to grips with the new demand patterns after the initial boost resulting from pent up demand.

Those businesses that have used the opportunity of the lockdown period to streamline their business operations and to digitise are likely to be disproportionately advantaged in the medium and long term.

Whatever happens in the rapidly evolving global landscape, it is clear that few industries will return to normal any time soon.

We hope you enjoyed this article. If you would like to read similar articles, please follow GDPLive on Medium and check out our most popular articles below. Many thanks!

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GDPLive is a world-first real-time GDP forecaster, which uses big data and AI to form estimates of economic activity in NZ. Go to: www.gdplive.net

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GDPLive is a world-first real-time GDP forecaster, which uses big data and AI to form estimates of economic activity in NZ. Go to: www.gdplive.net

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