A Blog by Jonathan Low


Nov 27, 2020

It's Black Friday, But the Stay-At-Home Economy Is Here To Stay

Most people, including the least technologically gifted, have adapted - and they like the new convenience as well as the safety. JL

Christopher Mims reports in the Wall Street Journal:

What were conveniences before the pandemic now seem necessities that we’re unlikely to give up even after there’s widespread immunity to the coronavirus. Companies made huge investments in the infrastructure needed to deliver goods and services to our homes quickly and efficiently, which means those products are now easier to use and often less expensive. Families have also invested in services and gadgets (and) our habits have changed: people have gotten over the “hump” of adopting new technologies. Fed Chairman Jerome Powell, “We’re not going back to the same economy, we’re recovering to a different economy.”

Technology has helped make life tolerable in the pandemic. And whenever it becomes normal again to leave the house for work, school and shopping, we won’t be going back to the way it was. What were conveniences before the pandemic now seem necessities that we’re unlikely to give up even after there’s widespread immunity to the coronavirus. And there are a number of reasons this new stay-at-home economy will likely be an important part of the new normal.

First, companies have made huge investments in the infrastructure needed to deliver goods and services to our homes quickly and efficiently, which means those products are now easier to use and often less expensive. Second, families have also invested in the services and gadgets to keep their members safe and sated while sheltering in place. Third, our habits have changed: Many people have gotten over the “hump” of adopting new technologies earlier than they otherwise might have. And finally, hundreds of thousands of Americans who lost traditional jobs in retail and service—on showroom floors and inside restaurants—have found new ones working in online order fulfillment and delivery. Even those who retained their jobs are seeing their roles shift to address these new conduits for economic activity.

It’s no wonder Fed Chairman Jerome Powellsaid on Tuesday, “We’re not going back to the same economy—we’re recovering, but to a different economy.”

You don’t have to look beyond the behemoth of Amazon for an example of a company betting that the stay-at-home economy will last. It spent $30 billion on capital expenditures in the first nine months of 2020, much of it for its e-commerce business.

Just about every other company that competes with Amazon has made its own investments to handle the pandemic surge of demand. Walmart, Target and major grocery chains have all doubled down on using their stores as fulfillment centers in which deliveries can be packed up and sent out. Netflix, Disney and other purveyors of streamed entertainment have added not just subscribers but also deals for the IT infrastructure and content required to keep them around.

Delivery platforms such as DoorDash and Uber have spent heavily on sales and marketing, both to acquire new restaurants for their platforms and to bring in more customers.

Chipotle, which partnered with DoorDash, has seen demand for at-home consumption explode. Delivery and other digital orders, which include those made on its app and picked up in the restaurant, now make up about 50% of its revenue, says Curt Garner, chief technology officer. This has bolstered the company’s bottom line and allowed it to continue hiring throughout 2020, even as independent restaurants have experienced an absolute bloodbath.

Following the industry trend of the “ghost kitchen”—restaurants with no attached storefront, which only do delivery—Chipotle just opened its first “digital kitchen,” in Highland Falls, N.Y. Unlike previous ghost kitchens, this Chipotle allows for pickup as well as delivery. Red Lobster and many other chains are making similar moves.

The billions spent by these companies are investments they’ll want to continue to see returns on even after we settle into post-pandemic life. It also helps that we, as individuals, are paying for the stay-at-home economy, in ways that go well beyond burritos and coconut shrimp.

Take Peloton, the company that has made its mission keeping Americans from ever going back to the gym. In the past year, the company doubled the number of subscriptions for its connected bikes and treadmills, to 1.3 million from 563,000. It also saw monthly workouts per subscription nearly double in the same period.

Even the least expensive Peloton bikes are nearly $2,000 each, and require a $39-a-month content subscription. The shuttering of gyms pushed hundreds of thousands of Americans over a significant financial and mental barrier, and into the sweaty-yet-remote arms of motivational music-pumping Peloton instructors. Few who have spent that much on this new way of life will be eager to return to an actual gym. People are generally loath to abandon sunk costs, and in the time-starved country that invented fast food and TV dinners, we tend to stick with any new convenience to which we’ve acclimated.

As marketers of new technologies can tell you, the hardest part is getting people to adopt new ways of doing things. The sudden, pandemic-era American interest in bidets is a good example. But this tendency also means that new innovations can be sticky: Once a habit is established, it’s not easily broken.

During the pandemic, 10 years of consumer adoption of e-commerce was compressed into three months, according to a recent survey by McKinsey. Adoption has varied by age, since younger people were already more likely to shop—and do everything else—online. A survey just out from digital consultancy Mobiquity found a 47% increase in the number of baby boomers reporting they had ordered delivery from a restaurant through a website or app; a 193% increase in the number ordering groceries through a website or app; and a 469% increase in the number who had used telemedicine. Nearly 9 in 10 boomer respondents said they’ll continue to use such technologies even after the pandemic ends.

One force that will keep millions of Americans consuming at home is that it’s often cheaper, and the pandemic has wrecked the finances and wages of many Americans. As in every recession, consumers will be more likely to eat at home or entertain themselves there, says Michelle Evans, senior head of digital-consumer research at Euromonitor.

Delivering all these goods and services wouldn’t be possible without a rapid shift in where hundreds of thousands—eventually, probably millions—of Americans are employed. From the start of 2020 through the end of October, Amazon added 400,000 workers, the overwhelming majority in its e-commerce distribution system, including warehouses and delivery. That’s the equivalent of the entire workforce of Home Depot. And unlike the company’s annual holiday surge of temporary hiring, these are permanent positions, and push the company’s population of global employees to more than 1.1 million.

Those workers had to come from somewhere, and while it’s impossible to know the exact breakdown, a large proportion likely comes from America’s decimated ranks of service sector workers, as restaurants, hotels, movie theaters, gyms and related businesses shuttered en masse. A long recovery from the ongoing economic devastation of the pandemic might continue to inflict pain on America’s low-wage workers, but it also ensures a glut of cheap labor.

As soon as they feel safe doing so, Americans will return to restaurants and bars, concert venues and shopping malls, amusement parks and movie theaters—though there will be fewer to return to, at least at first. Disney, the pandemic-era darling of streaming, laid off 28,000 of its furloughed employees in September, across its amusement parks and consumer-product divisions. AMC Entertainment, the biggest movie theater chain in the world, is facing bankruptcy. The National Restaurant Association predicts that 100,000 restaurants will close this year. Yelp has found that this year, as of September, nearly 98,000 local businesses listed on the site in the U.S. have closed permanently.

Some areas where the stay-at-home alternatives still aren’t adequate substitutes, like clothes shopping and live music, might bounce back faster than others. Sometime soon, a trip to a nearby restaurant could seem low-risk and more cost effective than an online order. Besides, anyone hungry for a little more variety than “guac or no guac” will eventually stampede to whatever local favorites have managed to survive.

There’s also the possibility that Americans will be so relieved to finally go out again that they gorge themselves on away-from-home experiences. Despite all the spending on Peloton bikes, TVs and laptops, and despite the 10 million people who remain unemployed, between February and October, U.S. savings account balances rose $2 trillion, notes economist Ian Shepherdson of Pantheon Macroeconomics.

“There’s a lot of unknowns, but the thing I’m most confident about is there’s a ton of cash to finance spending, and a ton of untapped demand for services,” he adds.

If things do go back to that “normal,” some companies now benefitting from the stay-at-home economy could be in jeopardy. DoorDash, which now claims half the food delivery market in the U.S., reported a surprise profit in the second quarter of 2020, but went back to burning cash in the most recent one. It also warned potential investors in its forthcoming IPO that it could continue to lose money—a safe bet if the end of the pandemic means an end to its growth or even a drop in revenue.

Nevertheless, many industries now face similar questions: Are Americans now satisfied with home workouts going to brave traffic and locker rooms to hit the gym? Will they leave their home theaters and buffet of streaming options to visit the sticky-floored, $15-a-ticket multiplex? Will they drive to a big box store or supermarket if the selection isn’t as good as what’s found in an app? Are people going to tolerate any extraneous effort whatsoever when they know whatever they want can be delivered to their door tomorrow—or even in as little as two hours?

To the degree the answer to those questions is “no,” the stay-at-home economy is here to stay.


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