By Brett Krantz & Alex Welsh
The short-term impacts of the COVID-19 pandemic on business are readily apparent—empty malls, shuttered restaurants and quiet assembly lines are prevalent. The effects of the coronavirus and the measures implemented to contain its spread have hit companies of all sizes hard. But when the “stay at home” orders expire and consumer confidence returns, what changes are here to stay?
Telework
Even before the current crisis began, the shift to remote work was underway. The COVID-19 pandemic and the attending “stay at home” orders issued by numerous states have rapidly accelerated that shift. The virtual conferencing service Zoom, for example, saw an explosion of regular users, growing from 10 million to 200 million almost overnight. It remains to be seen just how much distance working will be sustained after the economy fully reopens, but the Economist explains that “no one expects the amount of distance working ever again to be as low as it was before the virus hit.”
As remote work becomes more prevalent, it is important that both companies and their employees evolve. Organizations navigating this new way of working must adapt their approach to managing both individual employees and organizational culture. Companies’ infrastructure and policies must account for remote work issues involving cybersecurity threats and privacy concerns. Guidance from KJK’s Cybersecurity, Data Breach & Privacy Group on actions you should be taking is available here. There must also be a true focus on supporting work-life balance as those areas become even more intertwined. Mental health must be supported, and companies need to curate a positive work culture. Likewise, employees must understand the importance of documenting work, normalize video conferencing and learn to manage demands. KJK’s Labor & Employment Group can help you manage and support your human capital under these new circumstances.
Increased Debt Loads
When the crisis began, business debt was already “high and rising.” That debt load is only increasing as companies “scramble for funds to keep themselves running while profits evaporate.” The $13.5 trillion in corporate debt has been described as an “unexploded bomb,” with 40% or more of that debt at risk in the crisis. Morgan Stanley estimates that 1 in 6 companies does not have enough cash flow to cover the interest payments on their current debt. These are long-term issues, but to help you navigate this crisis in the short term, KJK has outlined various relief programs, including the Small Business Administration (SBA) Disaster Loan Program, the SBA Paycheck Protection Program, and the Treasury’s Main Street Lending Program. KJK will continue to keep you informed as the government looks to re-capitalize and extend these programs.
Even when we “return” to the new normal, for many businesses, priority number one is going to be to pay down debt. For many, this will be very difficult. For a few others, the crisis will present a business opportunity. Well capitalized lenders and cash-flush private equity investors, for example, may see a long-term payday. And well-positioned companies may be able to use the weakness of others’ balance sheets to acquire competitors. Likely regardless of what sector you’re in, as Allianz notes, “if you emerge from this, you will emerge to a landscape where a lot of your competitors have disappeared.”
Ecommerce
Another trend that has seen significant acceleration during the crisis is the shift toward digital commerce and online shopping. Indeed, ecommerce is up 25% as a result of the pandemic, which has acted as a “forcing function” pushing consumers to shop online. And the importance of ecommerce during the pandemic was underlined when the Cybersecurity and Infrastructure Security Agency amended its guidance on what constitutes an essential worker during a crisis to include ecommerce workers (“workers supporting ecommerce through distribution, warehouse, call center facilities, and other essential operational support functions”).
But will that trend continue after the pandemic subsides? The record drop in foot traffic suggests that it just might and may trigger a “second retail apocalypse” leaving less brick and mortar competition for digital merchants. Certainly, the organizations that have built up their ecommerce infrastructure in response to the crisis are unlikely to tear it down when retail stores reopen. The initial cost has already been borne, and companies will look to recoup or profit from that investment.
The shift to ecommerce has had some negative consequences, however. The pandemic has seen a rise in counterfeit products, drop-shipping and price gouging as the rush to meet the needs of panicking consumers came alongside a rush to capitalize on the same market forces. Websites have struggled to keep up with all the phantom products, counterfeit goods and items with unreasonable markups. And consumers new to ecommerce or desperate to find sanitizing spray, toilet paper and medical masks have been taken advantage of. This has damaged consumer trust and puts a premium on brand’s reputations. Brand protection should be a key part of every organization’s operational plan moving forward and KJK’s Brand Enforcement Group can help.
Supply Chain Lessons
Finally, one trend that may see a reversal as a result of the pandemic is the “just in time” logistics which resulted from cost-cutting in supply chains at the expense of flexibility and resiliency. As described by consulting firm Oxford Economics, the pandemic has “laid bare supply chain vulnerabilities and their impact on the world economy.” Efficiency and value are always important, but “the importance of supply chain resiliency has never been clearer.”
After the pandemic, companies should develop a comprehensive picture of their supply chain, digging down more deeply into suppliers’ suppliers. Understanding where the supply chain is vulnerable will enable organizations to identify alternative and backup suppliers, develop independent production capacity and amass stockpiles of critical elements.
If you have any questions about navigating the post-pandemic landscape, contact the groups referenced above, Brett S. Krantz at bk@kjk.com or 216.736.7238 or Alex M. Welsh at amw@kjk.com or 216.736.7263.