The new order: The pandemic might be waning, but its lessons will linger on

The pandemic might be waning, but its lessons will linger on. Excerpts from Lockdown or Economic Destruction? throw light on how some sectors will change

Automobiles

This is another segment which will witness cross currents which can affect the final outcome. Let us see what works in the favour of the industry. With social distancing being the norm, there would-be reluctance to travel by public transport and the natural corollary would be higher demand for automobiles and depending on the income level of the person the choice would be between a two-wheeler and a car. This will increase demand for vehicles in general also leading to more congestion on the roads. In particular, two wheelers would be preferred by people in larger cities on account of adapting to congestion.
A countervailing force would be in the form of lower demand due to greater propensity to work from home and offices also preferring to have their staff operate from home to save on office space. This will lower the demand for vehicles which would be used more for leisure activity rather than for commuting to place of work. Several offices have given up space and introduced the norm of partial working from home where staff come to office on rotation and make do with the existing or truncated office space. This makes travel less of a concern and hence the need to own a vehicle may come down.
As long as these new trends emerge and get cemented, the industry will have to keep this factor in mind.

Real Estate

This industry too will have to contend with differing forces. With companies now realizing that staff can operate from home quite efficiently there can be a reduction in demand for office space. Hence, commercial property will definitely see a decline and this sector has to be prepared for the same. We have also seen an increase in co-working spaces in urban India where professionals have preferred to rent out pace in common offices where overheads get defrayed over the tenants. Over the months of lockdown where everyone operated from home the tenants have realized that it is also possible to do business from home and hence would reconsider their options. Therefore, this entire business concept would be in jeopardy and the spaces that have been set up over the last few years would function with lower capacity utilization. This can lead to fall in rents and hence income for the promoters.

Commercial property also is manifested in malls and retail set ups. The impact of covid has had a sharp impact on both of them. Companies with their own showrooms had perforce to close in the first couple of months of the lockdown and would reconsider options based on the demand. This holds for garments, toys, cosmetics, phones, electronics, etc. Competition from the ecommerce format always existed and will increase sharply under these conditions. Malls had already reached the stage of having surplus capacity in big cities and will be challenged further with entry restrictions and SOPs affecting footfalls. Therefore, construction of new structures will witness a slowdown.

Even on the residential front there would be developments that can change the way in which people live and hence affect the realty players. Metropolitan cities and other urban areas which have been afflicted with the pandemic may not be the first choice for most people looking to buy houses. Congestion and slums would be influencing factors and while people may be forced to work where jobs exist, where choices exist would be exercised. Similarly, the penchant for having multiple homes in places like Mumbai and Delhi would be a thing of the past as investments in satellite towns and cities would make more sense in terms of cleaner living.

One may hope that the long-lasting impact of the pandemic would be change in living where hygiene dominates and people in cities also modify their way of living. This can mean creation of more homes that are spread out in the distant suburbs which offers benefits of social distancing and rather than live in crowded tenements which is the case in industrial-based-slums people prefer to live outside the city and commute to be safe. Individuals also would have to look for more space at home as families closeted in small apartments cannot manage business, education, and leisure in the limited space as family members fight for space and network connection.

These are possibilities and while one can never be sure of how individuals react, the commercial part of the story will definitely rule and hence real estate developers will have to be prepared for such a changing scenario.

Aviation

This is one segment that has to reinvent itself for sure in India. The airlines industry has always been under stress of high debt and high losses. Some have managed to break this link at times, but more often than not succumbed to this syndrome. The shutdown impact on this industry has been sharp and will continue to be challenging.

Travelers are of two types, business, and leisure. Both the engines need to fire to keep the industry going and there are problems here. Business travelers will take time to come back as the work from home practice has shown that business can be conducted from home and one need not travel to places to meet clients, customers or officials. This new style of working has benefited companies too which have saved on cost as the work is being conducted through technology without moving out. While traveling to other places has conventionally been considered to be an entitlement or perquisite especially as one moved up the corporate echelon, companies would be more discerning from now on. Also, executives may be apprehensive of travel and hence may prefer to do from home. Besides the fear syndrome there would also be the willingness of companies to pay for such travel which in turn will be linked to overall business prospects.

Retailing through Brick and Mortar

The lockdown made everyone turn to ecommerce and supermarket options where available. Certain large players have managed to capture the wallet share of customers during this time period and made major forays of investment in this area by delivering groceries at competitive prices. E-commerce always had the advantage of convenience where doorstep delivery made it an attractive option. Amazon in particular has made substantial gains in this area of ‘pantry business’ which had scaled up substantially over this period. This is not good news for the local retail store of the mom-and-pop variety. Their business was affected to begin with by irregular and erratic supplies which made it difficult to address the demand of customers. This was the time when Amazon, Flipkart and the other existing platforms like Big Basket and Grofers were able to leverage their financial clout and supply chains to enter the doors of several households. The local kiranas will find it hard to make up for this lost ground and given the limited financial wherewithal would probably have to wind up at some point of time. Such business in rural areas will still survive but metro and larger urban areas would see a distinct transition.

Excerpted from ‘Lockdown or Economic Destruction?‘ by Madan Sabnavis, by permission of Atlantic Publishers and Distributors

Lockdown or Economic Destruction?
Madan Sabnavis
Atlantic Publishers and Distributors
Pp 222, Rs 595