Quarantine Radically Changes Business Behavior
Beyond binging on Netflix, quarantine means we are probably eating and drinking too much, and never getting out of our pajamas.
And that assumption perfectly aligns with a new report from Adobe Analytics. Its Digital Economy Index shows people are developing lots of new habits around comfort. Many of these behavioral shifts may be hard to break in the future.
Some of the best companies, like Netflix, are working hard to make it so.
The analytics team at Adobe work with 80 of the top 100 retailers in the United States. Every month they collect 1 trillion online transactions representing 100 million products. Given the pandemic, it is not surprising to see consumers spending money on the products they need to be comfortable living and working from home.
Zoom Video Communications (ZM), for example, is better with a high definition webcam and a dedicated microphone. It’s an anecdote confirmed by the Adobe data. Computer gizmo sales jumped 459% in April.
On Tuesday, Logitech (LOGI) reported full year sales of almost $3 billion, up 7% year-over-year. It was the best year on record for the maker of after-market computer peripherals. Managers expect this trend to continue as many companies make working from home permanent. It makes sense. It’s a compelling alternative to taking on the liability of having staff on premises in the COVID-19 era.
And this sales trend may continue. On Tuesday, Twitter (TWTR) reported it will become the first major company to allow some staff to work from home even after the lockdown ends.
Meanwhile, even essential goods like groceries, cleaning goods and medical supplies have accelerated the transition to e-commerce.
Amazon.com (AMZN) managers in March announced the online retailer would hire 100,000 new employees to keep pace with accelerating demand. And Instacart, a grocery delivery service with a penchant for losing money, became profitable for the first time in its eight-year history, according to a story at The Information.
Increased purchases of comfortable clothing is another new trend. Adobe research shows pajamas are definitely in, surging 143% year-over-year. Meanwhile business attire is absolutely out. During the same time frame, business pants and jackets fell 13% and 33% respectively.
The weakness in formal clothing is depressing overall apparel pricing at a time when brick and mortar stores can least afford it. Prices fell 12% during April, the biggest monthly fall in five years. It could be a death knell for stores that ordered spring jackets and dresses months ago. Those sales are gone forever.
On the other end of the spectrum, booze sales are rising quickly. Online orders for beer, wine and spirits surged 74%. Apparently, spring jackets are optional in Margaritaville.
The biggest new trend, however, is online ordering for in-store pickup. The Adobe data reveals this category surged 208% in April, versus a year ago.
This is a digital transformation story, and the early winners got their start years ago.
McDonalds (MCD) began to transform its operations with digital tools in 2017. The company built smartphone apps to register patrons, then product managers slowly began changing the way orders were placed.
Today, customers can order, pay for and pickup Big Macs and Happy Meals without ever speaking with an employee or entering the drive-thru queue.
Curbside delivery and takeout have been big parts of growth at Darden Restaurants (DRI) since 2017. The operator of 1,500 restaurants, including Olive Garden, Longhorn Steakhouse and Capital Grille, began its digital transformation strategy three years ago. In the first year, “to go” sales surged 21%. The company is currently offering no contact, full curbside delivery. Customers order and pay online. Staff deliver food curbside.
It’s a strategy now being pressed at Chipotle Mexican Grill (CMG), too. The Mexican restaurant chain reported in March that digital sales soared 81% during the first quarter. And sales more than doubled as the pandemic accelerated in March. Company managers expect that so-called order ahead sales, where customers order and pay online, then drive through “Chipotlanes” for pickup, now represent 70% of revenues.
Currently, digital sales are still a tiny part of revenues at Home Depot (HD). However, the home improvement giant might have the most aggressive curbside strategy ever in the works. Managers are experimenting with a digital locker system for contractors, its most important customers. Professional renovators will place orders ahead on account. The items are loaded by staff into a locker outside of the store that can be opened with a code sent to a smartphone. There is no physical contact with staff and no lines.
There’s no other way to put it, the COVID-19 pandemic has changed the way businesses operate. The bigger trends are here to stay. But in reality, they were set into motion long ago.
Investors should pay attention to the companies getting it right. They are going to emerge as the winners.
Jon D. Markman