This is issue number 033 of our weekly newsletter WTF is going on with the Economy?! In it, we talk about changes in shopping affecting the global economy.
Before jumping into this one further, I have a confession:
I meant to write this piece around late November.
However, the mix of turbulence in (crypto)currency markets and the low-hanging fruit to write an article based solely on a terrible play on words pushed this article back.
As you’shve probably figured out, shopping and e-commerce went on a wild ride this year.
As shops shut to fight the pandemic, shopping moved online.
Tens of millions of people got their first introduction by fire to e-commerce.
As we rolled into the holiday season, physical stores in many parts of the world remained shut, giving online giants almost total market share.
Small businesses and traditional retailers who lacked any serious online presence have all suffered greatly.
Now, with Black Friday almost going exclusively to online-first stores by default, it’s safe to say that the industry is facing some serious questions.
(By the way, Black Friday gets its name from the fact that retailers in the US tend to breakeven on the sales immediately following Thanksgiving.
In American business-speak, going in the black means that a business is now profitable instead of making a loss and being “in the red.”
The term has nothing to do with the cultural black-eye of people stampeding for a low-quality discounted TV in the middle of the night. Now you know!)
The tough questions facing retail shopping in 2021
The retail industry, policymakers, economists, and investors all see a rough road ahead.
Here are some of the most pressing issues.
Will this be the year that e-commerce overtakes traditional shopping?
Despite e-commerce’s growth, physical shopping is still number one – and it’s not even close.
However, a lot of the projects about future growth come from pre-pandemic models.
Will new consumer habits change those curves?
If so, what do they look like?
The industry and government officials are scrambling to find out.
The former wants to stay on top of the curve.
The latter needs to react to either support or stall these changes.
Speaking of which:
Does it make sense to support an outdated business model for tradition’s sake creating zombie companies?
By the pure laws of economics, companies must either lead, adapt, or fail in periods of disruption.
Politicians are now in a weird spot.
By shutting down brick-and-mortar stores, they effectively accelerated the e-commerce trend.
To help compensate for losses, governments gave these retailers financial relief to make it through the pandemic.
Overall, these bailouts prevented short term pain.
Yet, they also kept poorly run companies or outdated business models alive when they would’ve failed otherwise (hence, zombies).
Should politicians keep an old model alive for tradition’s sake (and to win votes)? Or should they fully embrace the new while helping failed business owners transition to new work?
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What do the changes mean for the investment landscape?
Humans are (mostly) adept at dealing with change.
Companies and entrepreneurs will find ways to thrive in new environments and create innovative ways to sell us stuff.
But whether it’s through re-imaging the shopping experience or building their online presence, companies will need capital, aka money!
How will they raise funds?
- Bank loans are still an enormous source of financing, and banks sell those loans to investors.
- Crowdfunding lets startups and brands raise money (without necessarily paying it back) directly from supporters and lower-tier investors. User experience and brand loyalty is a massive part of our life right now. Crowdfunding taps into those values effectively.
As investors, what does that mean for us?
The way we grow our savings and wealth will potentially shift from only mainstream investments and savings accounts to searching for new alternatives.
In many ways, we should welcome these challenges.
Diversification is key to any solid investment strategy.
What does that mean for the overall economy?
Retail spending is one of the most significant indicators in developed economies.
Shifts in this sector impact workers, real estate, entire supply chains, and the environment.
It will be fascinating to watch how it all plays out as the economy recovers.
From spending habits to business-adaptation to the act of investing itself, we’ll feel this year’s Black Friday, holiday season, and pandemic for years to come.
Hopefully, it won’t interrupt our ability to buy peanut butter.