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Apr 29, 2021
Work in the post-pandemic world — What does it look like?
As businesses, including us at Summitry, prepare for a return to the office, many CEOs are left wondering what the future of work in a post-pandemic world will look like.
McKinsey Global Institute recently published a study suggesting that 20-25% of workers in advanced economies could work remotely 3+ days a week on a long-term basis. This would represent a four to five-fold increase from pre-pandemic levels.
Early signs suggest that post-pandemic return-to-work policies will vary considerably depending on industry and nature of work. Even within industries, approaches vary:
Wall Street Journal, Feb 9, 2021: “Last May, Facebook Inc., which has about 56,600 employees, said it would be moving to a substantially more remote workforce, and Twitter said it would give all employees the option to stay remote.
Others have indicated they remain committed to office-based work. Amazon.com Inc., which went on a hiring spree last year, expanded office space in six U.S. cities and said last month that it had leased more space in Boston to accommodate a growing workforce there.”
Given our approach to investing, we pay particularly close attention to CEOs of the companies we own in our portfolios and their competitors. A company’s intrinsic value hinges on its future profitability, and the CEOs who serve as a mouthpiece for the corporations they serve can provide us clues on how their world is evolving as a consequence of the pandemic. One thing is clear in CEOs’ minds – The future workplace will look different.
What will be impacted?
The pandemic forced many companies to go fully virtual. This opened the eyes of many CEOs to see that employees can be just as productive while working remotely. As we look at the workplace post-pandemic, this could have significant impacts in three key areas: 1) the future of business travel; 2) demand for office space; and 3) the future of the “office” more broadly.
The following comments provide insights on how business leaders we follow view these areas.
1. Business travel may not fully recover
Visa CEO Alfred Kelly on Jan 28, 2021: “I think it’s going to take more time to see business travel come back. And frankly, it might take years for business travel to return to what it is. I mean we’ve all gotten accustomed to talking on video conferences, et cetera. I think we all probably realized that there are trips that we took or authorized in the past that when we look back on it today in the light of talking on video, we say, “Why did we send somebody to that meeting for a 1.5-hour presentation that they could have just as well done on video?”
Booking Holdings CEO Glenn Fogel on Feb 24, 2021: I think that it’s going to be a while before corporate travel picks up the same way leisure will pick up. It’s going to need — It’s going to take longer. And as a share of total travel, it may never get back.”
2. Commercial office space will reduce as the office shifts elsewhere
Wall Street Journal, Feb 9, 2021: “Salesforce plans for most of its employees to work remotely part or full time after the pandemic and to reduce its real-estate footprint as a result, a top executive said, showing Covid-19’s lasting impact on how companies manage their workforces.
We’re not going back to the way things were,” Mr. Hyder [Chief People Officer] said in an interview. “I don’t believe that we’ll keep every space in every city that we’re in, including San Francisco.”
3. The future office can be anywhere with a good internet connection
Salesforce CEO Marc Benioff on Feb 25, 2021: “We’re just in a new pandemic world…. It’s an all-digital, it’s work-from-anywhere world… We have to be able to work, sell, service, market, collaborate and analyze our data from anywhere.”
Airbnb CEO Brian Chesky on Feb 25, 2021: “A world with Zoom is a world where more people can work from home. In a world where more people have the flexibility to work from home, we’re seeing more people say they can work from any home on Airbnb. And so we’ve seen a number of new use cases.
People are living more nomadically. Some people are taking longer-term stays, 1 or 2 months at a time in Airbnb. People are taking extended 3-, 4-day weekends, like many weekends in a row because they don’t have to be in the physical office.”
How will our companies be impacted?
Many of our holdings stand to benefit from these changes. There are the obvious beneficiaries like Microsoft and Salesforce that gain from an increased focus and reliance on productivity software. Then there are maybe less obvious beneficiaries in our portfolio, such as home improvement retailer Lowe’s and online travel agency Booking Holdings.
With Lowe’s, working from home means more home improvement projects.
Lowe’s CEO Marvin Ellison on Sep 20, 2020: “I mean most of us are spending more time in our homes than we probably ever have. And so as you spend more time at home as the do-it-yourself customer, you’re going to find projects that you are going to invest in to make your home most functional. If you just get snapshot to the normal American household right now, you have individuals finding ways to repurpose their home, did they have to create workspace because many people are fortunate enough to work from home. They have to create space for their kids, in many cases, to go to school from home. So they’re repurposing space for that. In the repurposing space to just try to find ways to relax and to just have more social activity at home without venturing out.
And so that creates investment in the home and outside of the home, let’s say, in the backyard. And then you take those 3 things and combine it with just a simple home improvement projects that you take on because you’re physically there so much, you start to see these little maintenance items that need to be repaired.”
With Booking Holdings, the impact is more second order in nature. A decline in business travel will likely result in lower demand for hotel stays. This will intensify competition among hotels in courting leisure travelers. Since Booking Holdings is a top distribution partner for hotels in the leisure travel space, more competition among hotels will likely make Booking Holdings a more valuable partner going forward.
Booking Holdings CEO Glenn Fogel on Feb 24, 2021: “I think that it’s going to be a while before corporate travel picks up the same way leisure will pick up. It’s going to take longer. And as a share of total travel, it may never get back…. What that does to certain high-ADR [“price”] hotels that cater to the business traveler, they’re going to have to make some shifts because they’re not going to get those — as many of those high-ADR customers anymore, and they need to get more leisure travelers.
Well, we [Booking.com] have a higher percentage of leisure travelers than business travelers. We are, again, that point where people can come and get that leisure demand. So again, it’s another thing why I feel good about our long-term future.”
The future is always uncertain
Who would have thought a global pandemic would boost home improvement sales? By investing in companies with strong competitive advantages and smart, flexible management teams, we own a portfolio of businesses that can adapt to almost any environment…including whatever lies ahead in the post-pandemic world we are all eager to experience.
Interested in learning more about our outlook? Contact us today!
The securities identified and described do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that an investment in the securities identified was or will be profitable.
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