What Next, Post Lockdown?
As we are all faced with uncertainty on the future of COVID 19 Virus and the final solution , there seems to be a consensus that various measures taken by governments including social distancing measures and lockdown have managed to supress the number of cases in pandemic. However this is optimism and hope till we actually AND conclusively get a vaccine or medication . We are informed that many countries are at advanced stages in the development of the cure , so the hope and faith may not be misplaced. The time taken for resolution may differ from 30 days to 360 days.
One issue which has become a dampener is the possibility of re-occurrence of the virus, would this mean similar measures going forward including possibility of further lockdowns , this may not be good news for Businesses which work on people and service , especially hospitality and aviation and they will have to bring up innovative steps for combatting this.
The work and ideas have started , airlines are working on models where travel can be arranged following some social distancing norms , these solutions however have some loss of efficiency, but business will be initiated and jobs can be saved. Similarly hospitality and travel would need to plan accordingly. As per the recent reports the western world is working on an Economic backlash against China. You have seen India already putting a stop to China investments calling it vulterisation Other countries are also on their China strategy. Japan Govt has announced packages for its companies bringing back manufacturing home. Global Businesses need to keep this in mind and work accordingly.
What has been the impact based on story so far : We have realised human life and health and safety is the most critical factor and the initial threat and scare of losing lives has been huge. People had started losing hope and felt lockdowns would be a part of their lives and huge hoarding started across the globe. We came across videos of people fighting over toilet roll and super markets becoming empty.
However that is before the economic scare has stuck people.
Now people are realizing that it’s not only lives but their livelihood they need to save .
Currently the situation post lockdown would be a situation of wait and watch , job losses and recovery of economic well-being.
The spending could drop or people would delay spending for a while. The amount of webinars , zoom calls , free e learning modules have been huge. Everyone in the lockdown has been consuming digital content. Netflix , Amazon prime have the maximum viewership’s. This is something which could be a game changer and here to stay. Companies are already planning that for the jobs , which they realise , can be conveniently handled from home without office should be done by WFH and they will do the same and shift office strategies will be initiated thereby cutting huge amounts of rental and administrative costs.
This would be good for India. As could be seen luxury products are not on peoples mind . Also socially it does not look a good idea to spend when huge amounts of migrant workers are on streets not knowing where they would stay or what they would eat. So focus on consumption would shift and luxury brands could take a beating . I think the most important factor in consumption would be safety. If you open any food delivery app , while earlier the focus was on food we can now see huge banners talking about how safe their vendors are and delivery and testing. I think this is here to stay and companies which invest into this along with innovation will be favoured by consumers. In the finance world, banking has been impacted by loss of fresh loans and credits, however they are conserving cash and being selective and this would be the norm for the next 12 months at least.
Economy needs to be pumped up, government as per estimated was earning about $60-70 billion a week from taxes. Size of Indian economy is about $3 Trillion. Government will need to battle both reduced collection of taxes and spending on social measures. More social welfare funding by government will be seen as poverty in India is seemingly further increasing. There could be measure on quantitative easing by the government if it helps. One advantage which INDIA has is that it can start planning over the next 12 months to take advantage of the result of the backlash against China. India and Indian businesses can become the contract manufacturer of the world, just like China is. India needs to make use of this opportunity smartly.
Funds who have huge Liquidity can be attracted to India, companies will start investing in technology , governance and measures to take care of such lockdown risks as much as possible for future as many businesses this time were caught off guard.
Earnings season and Forecasts
As the earnings seasons start , many companies were able to somewhat manage Q4 as lockdown impact was only in the last part of March , but their future guidance’s will be watched closely and how they intend to tackle their business issues.
As per the big consultancy houses currently the focus is on costs. Costs are segregated into important and controllable. Some important costs include Digitization, tech costs, digital marketing, Optimum employees to be retained. Controllable costs are costs like administrative costs like high office rent, social costs etc which will be cut down .
There is a need to conserve cash and be Frugal, Remove all the flab and be lean.
Create supplier and vendor relationships and communication channels. This would be across all stakeholders like suppliers, employees, etc and try to find the middle ground, so that the burden can be shared justly. The companies with right and innovative strategies will come up as winners. Pricing may need relooking. People are looking for cheaper prices or cheaper goods.
Industries which will have some more pain and will innovate to bounce back would be Travel , Hospitality, Food and beverages , Luxury goods and apparel, real estate. At this point it would be important to note that people will also postpone home buying , one is for fear of loss of jobs and second is the anticipation that lower demand could lead to a price drop. Some analysts who track real estate have predicted a 25% drop in prices, this is a projection but a wait and watch policy will be working in many customers minds. In terms of offices and commercial space I think WFH will be a big booster for saving costs even going forward , secondly co-working space would become the norm for future to avoid high fixed costs, especially in Metro’s
Social events have been controlled , especially wedding which used to be huge affairs and all associated industries including Gold and Jewellery are taking a hit. But this is more a social issue and post the resolution could bounce back. However how much of bookings for the next destination wedding in H2 of the year can be seen by banquets and hotels will be a barometer on the bounce back of this industry. Hospitality will bank a lot on this demand to be inelastic once the fear of pandemic subsides and lockdown rules are relaxed.
Companies with manageable debt and equity ratio and robust DSRA will sail through but working capital management would be a challenge , collections would be impacted across all industries. Even conservative industries like schools and education are seeing the impact as parents are delaying fees payments.
The start-up sectors for investments would change and I as an Angel investor would definitely look forward to those involved in cyber security, cloud services, online education services, etc.
As per a McKinsey survey of entrepreneurs released few days ago, 53% of Indian entrepreneurs are optimistic, while only 25% of Japanese entrepreneurs are optimistic.
Some measures which would be planned for the future.
Work force management : Protect the employees and give then the emotional and economic support. Various functional teams will need to be set and the CEO will need to lead from the front.
Conserve the cash ,manage working capital, improve collections. Businesses need to define scenarios tailored to the company’s context. For the critical variables that will affect revenue and cost, they can define input numbers through analytics and expert input. Companies should model their financials (cash flow, P&L, balance sheet) in each scenario and identify triggers that might significantly impair liquidity. For each such trigger, companies should define moves to stabilize the organization in each scenario (optimizing accounts payable and receivable; cost reduction; divestments and M&A).
Robust supply chain. Companies need to define the extent and likely duration of their supply-chain exposure to areas that are experiencing community transmission, including tier-1, -2, and -3 suppliers, and inventory levels.
Customer relationships and Brand loyalty. Companies that will manage this better than others will have a better opportunity and gain markets
Execution – Having fast and swift execution plan and a team which will think clearly and follow the CEO will be essential to come back swiftly on restart.
Business has to be seen as socially responsible , CSR would be a buzz word and people will appreciate brands which are working on socially relevant. Companies need to figure out how to support response efforts—such as by providing money, equipment, or expertise. For example, a few companies have shifted production to create medical masks and clothing.
Based on market data and China case study the world has worked towards flattening the curve . the exact time frame for normality cannot be predicted , but now post lock down the world would re boot and restart and companies would need to put their best foot forward and bring best efficiencies to the world for the sake of employees and society at large.
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