Mon, November 29, 2021


The new coronavirus economy: A 'gigantic experiment' reshaping how we work and live

ECON-ANALYSIS 2258 words Ferrell Alvarez and Ty Rodriguez closed their restaurants in Tampa's trendy Seminole Heights neighborhood last week. But they have a plan for riding out the coronavirus outbreak: Building a takeout business of fried chicken sandwiches and gnocchi with short ribs for Floridians hungry for comfort food amid a global crisis.

"Tuesday was the most dreadful day for me. I was crying," Alvarez said. "The next morning I created our concept."

As the pandemic takes hold across America, some businesses are getting crushed, like Powell's Books in Portland, Oregon, which closed its doors for at least eight weeks. Others are thriving, like Amazon, which announced 100,000 new hires to help manage the rush off online orders. Still others, like Tampa's Rooster & the Till restaurant, are adapting - in ways that, economists say, might lead to long-term shifts in how Americans spend, work and live.

The pandemic has been a relentless destroyer of brick-and-mortar businesses as public health officials warn against in-person interactions. But the coronavirus is boosting almost anything that can be done online or with minimal human contact - grocery deliveries, online learning, takeout food, streaming video, even real estate closings done with online notaries.

The result, economists say, is likely to be dramatic losses in local retail and dining options, with millions of jobs disappearing as the biggest and wealthiest companies - especially those that do much of their business online - extend their gains. Telework, online education and streaming video already have grown sharply, while movie theaters, schools and traditional workplaces close their doors. Some will never reopen in a world where the shift from real to virtual suddenly has gone into overdrive.

While some economists caution these shifts may be temporary, others see long-term changes taking hold.

"People will change their habits, and some of these habits will stick," said Susan Athey, an economics of technology professor at Stanford Graduate School of Business. "There's a lot of things where people are just slowly shifting, and this will accelerate that."

The impacts of the coronavirus are cutting across the nation's more than $20 trillion economy, closing down sports leagues and art venues, canceling concerts and funerals, and shuttering bars, boutiques, restaurants and toy stores.

Even before the crisis, retailers last year announced a record 9,300 store closures amid widespread bankruptcy filings. As the growing pandemic forces companies like Apple, Nordstrom and Macy's to close thousands of stores temporarily, analysts say they are bracing for a monumental shift: Deborah Weinswig, head of the retail analyst Coresight Research, said more than 15,000 stores are likely to announce closures this year.

The virus also could exacerbate an already widening gap between the country's most successful retailers - giants such as Amazon, Walmart, Target and Costco - and the rest of the industry. Companies selling groceries and staples are thriving, while the rest are barely hanging on, a dynamic analysts say is likely to become even more pronounced as economic conditions worsen.

Amazon's 100,000 new jobs are for warehouse workers and drivers. Walmart, meanwhile, is adding 150,000 positions to keep up with booming demand, and 7-Eleven is hiring 20,000 people to deal with what executives say is an "unprecedented crisis." (Jeff Bezos, the founder and chief executive of Amazon, owns The Washington Post.)

Grocery stores also are speeding up investments in micro-fulfillment technology, robotic warehouses and drone deliveries to keep up with demand for home deliveries, industry consultants said.

In the entertainment industry, Universal Pictures announced this week its animated adventure "Trolls World Tour," due for release in April, instead would be available for streaming. Such shifts, if they took hold longer term, could imperil movie theaters, especially small and independent ones that run on narrow margins based heavily on concession fees.

Theater giants AMC and Regal, which operate nearly 20,000 of the country's 40,000 screens, are better equipped to weather the storm. Closures of as much as three months, as AMC said was possible, could result in a contraction in the numbers of screens as companies look to avoid losses.

Arts groups also are turning to online platforms, opening the possibility that habits of arts consumption will be profoundly changed. From giant opera companies to individual artists using cellphone cameras in their living rooms, there has been a flood of live-streamed performances since the crisis intensified last week. Most of these performances aren't earning revenue. But they could presage a major shift in how audiences expect to access content.

"I think there is a big and fascinating issue about the stickiness of some of these changes," says Doug Noonan, a professor of public and environmental affairs at Indiana University-Purdue University Indianapolis.

Some businesses might snap back to normal after a temporary reprieve of social distancing. But there are no guarantees how long this new phase will last, and many analysts acknowledge we don't know what businesses will look like after the outbreak subsides. A world of new businesses and ideas are likely to bloom from the agony and opportunity of American isolation.

Many business practices, such as remote work and the online medical visits of telehealth, were slow to win widespread adoption because of behavioral inertia. But the outbreak - and its indefinite period of upended life - could speed adoption of such unfamiliar ways of doing business.

Any traditional face-to-face encounter - going to an accountant's office, sending children to class, traveling for a business meeting - could some day seem less necessary as more remote options become publicly acceptable and widespread.

"It's amazing how slowly habits change, where people get stuck in the ruts of doing things, and then you have a shock like this that can change everything," said Erik Brynjolfsson, director of the MIT Initiative on the Digital Economy. "It forces people to overcome the switching costs, figure out something new and say, 'Hey, this is way better.' "

American businesses long have shown the scars of national trauma: Devastating fires, for example, spawned major factory regulations. World War II hastened the entrance of women into the workforce. Analysts say the novel coronavirus pandemic could push broad societal shifts along the lines of the Great Recession in 2008, with industry-wide disruption and a new normal for economic change.

Some analysts expect the rush to online everything will lead to more winner-take-all markets: Small to medium-sized firms handing local neighborhoods could suffer as larger companies consolidate power over the digital world.

Economists with Deutsche Bank, JPMorgan Chase and others also are bracing for a historic surge of nationwide layoffs. In fact, Goldman Sachs has said it expects "an unprecedented decline in revenues across many industries," saying between 3 and 7 million jobs could disappear by the summer.

Nearly 40 percent of Americans already were living paycheck to paycheck before the coronavirus recession hit, and there is widespread concern these Americans could lose their homes and may not have jobs to return to even after the pandemic subsides. Inequality could grow wider if big companies use the pandemic as a catalyst to automate more jobs and use more contract workers who don't receive benefits and are easier to fire in a downturn.

Janitors, child-care workers, grocery store clerks and servers may be able to demand higher pay and better working conditions in the post-coronavirus world, some analysts predict. Many have called these workers "heroes" in the crisis. Last week, Congress passed legislation to provide two weeks of paid sick leave to most of the nation, even gig workers. It applies only to the coronavirus, but it could be extended.

The Labor Department said last week the number of Americans filing for unemployment jumped to 281,000, its highest level in two years. The National Restaurant Association said it expected sales to plunge by $225 billion over the next three months.

The reality of office employees logging in from home also could reshape the American workplace. The top downloads of Apple's App Store last week included video-chat services from Zoom, Google and Microsoft, whose workplace app Teams said it climbed from 32 million to 44 million everyday users in nearly a week.

"This is an inflection point, and we're going to look back and realize this is where it all changed," Jared Spataro, a Microsoft executive, said in an (online) press briefing. "We're never going to go back to working the way that we did."

If employers see no dip in productivity, analysts expect they may more widely accept working from home or rethink the way their workplaces run. Instead of working all day in an office, employees and their bosses may find, instead, they split their jobs between the tasks that must be done in the office and all the others at home. Teams may rotate or stagger when they come in, thinning the number of desks and potentially removing whole offices entirely.

Kate Lister, the president of consulting firm Global Workplace Analytics, said she expects more than 25 percent of employees will continue working from home multiple days a week after the crisis fades.

The broader shift to remote work also could further erode U.S. workers' place in the local ecosystem, leading to new waves of online outsourcing.

Other firms may become winners, too. Blue Apron, the food-delivery service, struggled for months to convince investors people would pay $60 a box for all of the ingredients they need to make home-cooked meals. But the firm saw its stock price skyrocket more than 500 percent last week amid a flurry of new interest. The company said it is hiring workers at its fulfillment centers in California and New Jersey to meet demand.

Streaming video, which already consumes about 60 percent of the Internet's total traffic, is likely to explode even further, and companies like Verizon said traffic from Web browsing and the use of company virtual private networks, or VPNs, has soared.

Those moves further could sap the energy from real-world institutions. Gyms have lost business to online fitness, cycling and yoga classes. Concert bands, comedians and musicians are live-streaming on Instagram, Facebook and Twitch, an Amazon-owned site where people watch others play video games.

Disney - which has closed theme parks, suspended cruises, canceled events, delayed film premieres and mothballed production of most of its movies and TV shows - told securities regulators last week the pandemic could lead to major "changes in consumer behavior."

The video game industry, which at $120 billion a year is bigger than the film and music industries combined, is booming, with tens of millions of players buying new distractions from Steam and other online storefronts. Esports, too, could benefit as sports consumers seek an alternative, with traditional leagues shuttered.

Traffic also has soared for streaming giants like Twitch and amateur projects like Netflix Party, a Chrome extension that lets people talk and watch videos in sync.

For sports fans, the in-person experience for fans will change. As global terrorism rose after the Sept. 11, 2001, attacks, walking through metal detectors and seeing armed security guards became part of attending games. Sports teams eager to make fans feel comfortable will make similar, less drastic changes in the wake of coronavirus - such as much more hand sanitizer and signs urging hand washing.

The steep growth of sports television rights fees also may accelerate. Networks increasingly have turned to live sports to combat streaming services. The dearth of sports may further increase viewers' appetites for those services while consumer habits shift toward staying home.

It's impossible to say what ripple effects these massive disruptions could cause. One analyst pointed to groceries: When few people opted for home delivery, the scale of the enterprise ensured the costs were high and availability was low. But as crowds of people opt for delivery, the routes drivers use will grow denser, and customers will expect everything can be dropped off at home. Deliveries of items that were generally in-store purchases - fresh foods, prescription drugs - could usher in new economies of scale.

Businesses dependent on prime real estate and bringing people together could be especially vulnerable as people opt against public gatherings, including shopping at malls. That could have other impacts, too: One analyst said he suspected conspicuous consumption - high fashion, expensive sneakers, sparkling jewelry - might suffer when people "don't have anywhere to parade."

Questions remain how these new and larger companies will treat the growing underclass they depend on for sales and production - or how they or the government will provide a safety net for the workers made expendable along the way. Even after the outbreak, analysts expect another wave of mass layoffs as people's jobs are replaced by new ways of work.

"The coronavirus is creating a fundamental opportunity to remake the economy," said Azeem Azhar, an analyst who runs the popular industry newsletter Exponential View. "People will sit down and reevaluate what life means to them, what they appreciate and what they can take away."

Carnegie Mellon Economics Professor Lee Branstetter said his first attempts at teaching students online convinced him, while there is some opportunity for efficiencies, the old-fashioned classroom experience offers much more. He expects other forays into living and working online will convince many to return to routine human contact once they can.

"What I'm appreciating is just how much we lose when we go online," Branstetter said.

Once the crisis is over, he added, "People are going to be so sick and tired of takeout."

- - -

The Washington Post's Mike Hume, Adam Kilgore, Philip Kennicott, Heather Long, Jena McGregor, Chris Mooney and Steve Zeitchik contributed to this report.

Published : March 22, 2020

By : The Washington Post · Craig Timberg, Drew Harwell, Laura Reiley, Abha Bhattarai