Tuesday 14 April, 2020
The strict rules of lockdown are forcing consumers around the world to find new ways to kill time. A few of us might have started writing a novel, or learned to play the guitar, or discovered a passion for embroidery. But a much larger proportion has been binge-watching Ozark on Netflix, playing video games, and eating frozen pizza.
Unsurprisingly, companies that benefit from people staying at home have performed well during the Covid-19 led sell-off. During a torrid March quarter when the global share index fell 21.4%, a small number of stocks finished in positive territory including Netflix, gaming company Activision Blizzard, and video conferencing platform Zoom Video Communications.
Supermarket stocks around the world have also performed relatively well as consumers restock pantries and prepare more food at home.
But the lockdown rules won’t last forever, and the bigger question for active investment managers is: how many of these new behaviours will stick when restrictions are lifted?
Quite a few, in our view. Partly because there may be a lingering reluctance to flock to crowded spaces, at least until a vaccine is discovered and widely available. But also, because staying at home was already a trend long before COVID-19 came along.
Actor Emma Watson (of Harry Potter fame) made headlines in 2017 when she said she enjoyed staying at home more than partying. It was hardly a revelation, but it highlighted a popular lifestyle choice among Millennials that prioritizes the comforts of home over a night on the town. It’s a trend known as “nesting”.
A 2018 study by market research company Mintel found that almost a third of younger Millennials (aged 24-31) preferred drinking at home because going out took too much effort. The extra cost of a night on the town was also a significant factor.
And that’s just the Millennials. The kids hot on their heels, Generation Z (aged 4-24), are generally regarded as more frugal and pragmatic than generation above them. Staying home could become an even more popular choice for teens and twentysomethings in the decade to come.
These trends might make young people seem lazy and antisocial, but that would be a glib assessment.
It’s no longer necessary to leave the house to socialise. Facebook and video chat apps make it easy to connect with people from your couch, and you’re not limited to friends within commuting distance.
Even on a solitary night in, the home entertainment options are endless. Netflix and other streaming services offer a vast range of TV shows and movies, YouTube and Spotify cater to just about any music taste, and gamers can connect and compete against other players across the globe.
Technology has even made higher brow pursuits more accessible such as learning a new language or browsing a museum’s art collection. And exercise? With the right equipment, it’s easy to remotely participate in spin classes or personal training sessions.
Dining at home options have also improved with the recent explosion of online ordering and delivery. It’s not just Dominos anymore. Companies like Uber Eats have greatly expanded the range and quality of meals that can be delivered to your doorstep.
Young people will still go out to clubs and restaurants, and when operating restrictions ease, savvy operators will find new and creative ways to lure them in. We may even see a post-lockdown spike in certain areas of the hospitality industry as stir crazy consumers reward themselves with meals out and drinks with friends.
But when we consider the longer-term impacts of a recession on already cash-strapped Millennials and Gen Zers, together with the range of options for entertainment and socialising at home, then we believe companies exposed to the nesting trend will continue to do well beyond the current pandemic.
This blog is intended as general information only. For advice about your particular circumstances please see a Kiwi Invest authorised financial adviser.