The Long-Term Impacts On Demand From COVID19
The impacts of the COVID19 pandemic on society are severe and documented daily. Over 28 million positive tests and over 500,000 deaths in the US in just a little more than one year. The pandemic brought on an economic recession, high unemployment, a spike in business failures, especially in the restaurant industry, disruption of the educational system, and massive increases in federal debt.
The new, and soon to be released, vaccines provide a ray of hope that the country can start easing back to some “new normal” where stay-at-home orders are lifted, schools reopen for onsite learning, and Federal debt increases begin to slow as less stimulus is needed. The “new normal” is likely quite different from the “old normal” pre-pandemic.
Here are Nine Ways COVID19 is Restructuring Demand Long-Term:
Increase in Remote Workforce Becomes Permanent
We all witnessed the move to a large remote workforce. Initially, most company leaders feared it could not be done. I’ve spoken with many community bank and credit union CEOs this last year, and they are surprised how quickly they were able to convert to a largely remote workforce and how little it disrupted their business. The longer these changes stay in place the greater chance that companies will keep them in place permanently. Pre-pandemic, about 4-5 million workers worked remotely at least part-time according to the Census Bureau. At the peak of the shutdown last spring, estimates were that 40-50% of the labor force was remote. Current projections for the post-pandemic workforce see somewhere between 20-25% of workers becoming permanently remote. That works out to 30-40 million people or about a 600-800% increase from pre-pandemic levels.
Downtown Businesses Impacted
Commuters are the lifeblood of downtown businesses, from sandwich shops to dry cleaners to parking lots. A 20% decline in commuters due to a larger remote workforce will likely be devastating to many of these businesses. They don’t have a backup plan for replacing that amount of demand. Some will go out of business, with some of those replaced by another small business that hopes to survive. Others will hang on, and even expand, as their competition fails. The key is that demand will be restructured.
Commercial Office Space Vacancies Grow Slowing New Construction
We’re already seeing spikes in office vacancies due to the shift to a larger remote workforce. Many developers are waiting to see how everything shakes out post-pandemic. Some large firms have gone public with plans to recall all workers back into corporate locations, while others have stated they will stay remote for the foreseeable future. The big property management firm CBRE projects a 15% reduction in demand in the post-pandemic era.
Suburbs Gain Both in Consumer Demand and Office Space Recovery
What downtown areas lose in business must go somewhere, most likely to the suburbs where employees reside. Most of the consumer demand shifting from downtown areas will be absorbed by existing businesses and some of it, lunches for example, might just go away as people eat at home more. The same CBRE report also notes that suburban commercial office space will likely recover more quickly, giving remote workers a place to drop in and connect with their firms.
Increased Migration from Big Cities (i.e., expensive) to Lower-Cost Small Towns
With the dramatic increase in a remote workforce, those workers are beginning to ask themselves “why am I still living in this city where I can’t afford an apartment or a home? If my work is remote, can’t it be anywhere?” In a previous life, I managed a large, distributed workforce of over 150 people located in 82 cities. Nearly all communications were remote, whether by conference calls or video conferences. A few years into that role, I convinced my corporate overlords I could do the job remotely too, and it would give me the chance to relocate to be near an elderly family member as their local support. I’ve been working remotely for over a decade now. The cost of housing in my new community was only 60% of that in the place I was leaving. For all the large corporate workforces in big, expensive cities like New York or California, we will likely see an exodus of employees to more affordable cities.
Auto Purchases and Financing Decline
If I don’t have a daily commute, or at least one longer than 30 feet, I will put fewer miles on my car. This behavior change has many positive benefits for the consumer and environment (e.g., cars last longer, maintenance costs reduced, less fossil fuel used, lower car emissions, etc.). Most credit unions and community banks rely on indirect auto financing as a driver of lending revenue to supplement mortgage loans. A significant reduction in that demand could have bottom-line consequences if the banks can’t adjust their business model.
Auto-Related Purchases Decline (oil changes, tires, etc.)
Fewer miles commuting directly impacts maintenance costs for those cars. Local firms that sell oil changes or tires will see reduced demand. Much like downtown businesses saw declines as workers went remote, these auto-related businesses will suffer as a larger remote workforce becomes less reliant on their cars. This same logic could be applied to firms that sell professional attire.
In-Person Retail Declines Continues
The shift to online ordering has been underway for years but has accelerated in the last year. Even grocery shopping has seen a spike in online orders or delivery through online firms, like Instacart. The purchases may stay local, but impulse buys are likely to remain suppressed. Sure, at some point we’ll feel safe going back to the grocery store, but I’m betting many people will have become accustomed to doing large shopping online.
In-Person Teller Services Demand Declines at a Faster Rate
The pandemic helped drive enrollment and usage of digital banking services as customers who had been resistant to change found they needed to change as temporary branch closures increased. If the shutdown had been only a few weeks or months, most consumers would have reverted to their old ways of interacting with their financial services provider when the pandemic was over. Unfortunately, we are now a year in and facing several more months of lockdowns. Those customers who had been reluctant are now comfortable with the new way of interacting and likely won’t revert to old behaviors. Certainly, some customers will go back to the old ways. These changes present opportunities to consider operational changes to your branches, with increased usage of self-service technologies such as TCRs and ITMs (Teller Cash Recyclers and Interactive Teller Machines).
What Do You Do in Response to These Changes?
So, demand will be dampened in many categories, and the location for where that demand can be found will change. Every financial services company that serves consumers and businesses must reassess how its current branch and ATM networks are set-up to serve shifting demand levels.
If your branches are heavily skewed toward employment zones, do you need to supplement them with suburban sites?
If your firm is reliant on auto financing, how will reduced demand impact your financial position?
Do your residential branches have enough capacity to absorb incremental volumes from an enlarged remote workforce?
Do you need to optimize your branch network for new demand levels to maximize revenue opportunities?
Do you need to redomicile your customer base to better understand new usage patterns and site value?
How have your trade areas changed under different demand scenarios?
Are your branches still maximizing revenues?
Does your branch format need to change?