Forecasts of the UK economy post-lockdown focus on the speed and extent of recovery. Less thought is being given to the nature of that recovery. How might it play out in individual sectors and companies? Investors need to think not just about how quickly the consumer will come back, but in what ways will behaviour change? It is tempting to focus on top down GDP forecasts but that may not tell us much about picking the winners and losers.
Specific concerns about travel and hospitality are understood, but other things might change, too. Consumers will be focused on rebuilding their own finances to provide a safety net for future risks. The prospect of business closures and unemployment will be in the minds of many. An overall dampening of discretionary expenditure seems likely.
Renewed pleasure in the home environment will replace some previous outside activities, and boost companies that support the home and home-office. It means some winners but lost demand for pubs and restaurants in city centres, and around offices.
And, the retail experience in city centres at weekends may also be dampened by what may seem a more hostile environment and riskier public transport. The city centre retailers that have re-opened seem to be struggling with what it takes to entice consumers in this new world. Consumers can buy online – above all, city shopping needs to be a pleasurable experience.
Discretionary consumer services are an important part of the UK stockmarket. It would be a mistake to assume too much from an overall economic bounce. Already it is clear that many retailers and restaurants will not re-open. For a while, city centres will look different, and possibly alien, to consumers. Investors need to question some of the macro projections, and focus on individual companies with strong customer offerings and brands. Economic recovery will leave some behind and portfolios should reflect this risk. There may be safer predictions to be made by investors in other sectors such as business services, communications and technology.