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How Would The New Normal Look Like

Opinions

Written by:

Alvin Chow

As we move from the industrial age to the information age, companies worldwide have been pushing for digital transformation. There are many schemes administered by the Singapore Government to encourage businesses to upgrade their wares and to adopt new technology. Many grants fall under the ambit of the Productivity & Innovation Credit (PIC) scheme. 

There are also other initiatives such as Work-Life Grant (WLG) to encourage companies to implement flexible work hours for their employees. All these were introduced to help businesses remain competitive in this digital era and to create better working environments.

These initiatives are good. But the truth is, they are often unable to effect permanent large-scale changes that actually lead to a huge increase in our GDP or to individual well-being.

While some berate the government for not doing more, I believe it is not the fault of the government. Human behaviour is extremely hard to change and there could be many factors that prevent change from happening. It could be the boss who sees that change will cost more. It could also be the staff, who do not want to change because the incentive to do so just isn’t powerful enough. We are all suckers for the status quo. Since everything is working fine, why change?

Until Covid-19 struck and this meme became most apt.

Now, the situation has changed dramatically. Almost everyone has to change the way he or she works. We have to physically distance ourselves from our fellow human beings in all areas of our lives. The adoption of online productivity and video conferencing took place overnight as employees have to work from home (WFH) and students are assigned home-based learning (HBL). Overnight, restaurants (even fine dining ones) jumped onto the delivery platform bandwagon to eek out some sales while everyone is made to stay home. 

“There are decades where nothing happens; and there are weeks where decades happen.”

― Vladimir Ilyich Lenin

Many of the cities around the world were in some form of lockdown. Initially there was disbelief, then there is denial. One by one we slowly came to the realisation that Covid-19 has changed our way of life. 

While some people may still harbour the hope that this disruption is temporary and that life would resume to normal once the measures are lifted, I believe that the world has already changed.

There will be a new normal which we have to adapt to. Here is a thought experiment about how things would pan out. 

Travel and Airlines

Human beings have been explorers since ancient times. We have wanderlust programmed into us. We will continue to yearn to travel and I for one do not think that travel is dead. 

In fact, China gave us some indication on this. The country has just emerged from a pretty intense almost nationwide lockdown. China’s domestic tourism revenue averaged 10.81 billion yuan per day during the Labour Day holidays, compared to the daily average of 29.42 billion yuan in the same period last year. It is pretty encouraging to see tourism recovering by 30% immediately after the lockdown. It should only improve from here. However, it will be a slow road to recovery and it may be years before the travel industry can return to its glory days. In the meantime, airlines, cruises companies, hotels and tour agencies will have to survive until that happens. 

Warren Buffett reportedly sold all his airline stocks and declared that he has made a mistake. Singapore Airlines had to launch a complex rights issue to stay afloat. Virgin Australia went into voluntary administration. Airlines worldwide are asking their governments for bailouts. The two giant aircraft manufacturers, Boeing and Airbus, have since encountered many more airlines pausing their deliveries and orders.

I believe there will be more bad news to come. Some airlines may go bankrupt. There will also be more merger and acquisition activities as the industry consolidates. The airlines which have the financial muscle or backing to tide this through would emerge a bigger player in the future.

Regardless of who the winners are, air travel will never be the same again. After the 9/11 terrorist attacks, we have accepted bag checks, body searches and liquid aerosol and gel (LAG) restrictions as the norm. Future checks would include temperature screening, health declarations, or even tracking apps to ensure viruses do not penetrate borders easily. 

There could also be defined passageways and isolation chambers to minimise the contact among travellers. Aircrafts may no longer be able to fill the seats shoulder-to-shoulder and every plane may only be able to carry half the number of passengers due to safe distancing practices.

These policies would increase the cost of air travel and we can expect ticket prices to go up. Budget airlines’ ticket prices may not look ‘budget’ anymore. In the long run, I expect the ratio of economy, business class and first class seats to change as well, with a higher proportion of the premium seats in each aircraft. This is because passengers may be more inclined to upgrade to more premium seats as the price differences narrow.

Work and Offices

Work-from-home (WFH) practices were not widely adopted by companies prior to Covid-19. Not only do bosses have little trust in such a system, many staff also found it hard to work at home with kids around.

As they say, necessity is the mother of all inventions. Now, everyone has no choice but to work from home.

I have friends who have gotten used to and are beginning to like their WFH arrangement. Personally, I must admit that my mornings have become better because I do not need to commute to the workplace. It saves substantial time and I can get more work done.

I do not think office space will become irrelevant but I do see more companies adopting a new modus operandi – a hybrid WFH and office combination. This means that less office space would be needed. This might give a boost to shared office operators like WeWork, as companies no longer need to provide a permanent space for each staff as the workforce goes mobile.

Office REITs would suffer since most of their occupants are able to do work remotely. Demand for office space would reduce. The idea of a Central Business District (CBD) would be challenged too. In fact, I believe office space would decentralise like how the heartland malls have done it successfully. Valuation of grade A office would likely decline as a result.

Technology and Homes

Homes would turn into offices. It is no longer about work-life balance but work-life integration. People will value homes more. Some might find it worthwhile to spruce up the environment where they spend most of their time in – to live, to rest, to play, to eat and now, to work. This would mean good news for furniture and home appliances companies. We had a glimpse of this with the crazy long queue at IKEA prior to its temporary closure in Singapore.

The lockdowns have also encouraged more adoption of technology at home. Super fast WIFI speeds have now become a necessity. Productivity and cloud software are needed for remote working (Zoom grew from 10 million users in Dec 2019 to 300 million in Apr 2020). Food delivery and e-commerce minimised the need to even leave the house. 

Stuck at home, people are unable to head out for entertainment. The only form of viable entertainment is whatever is available inside the household. Netflix added almost 16m new subscribers in the first quarter of 2020, higher than each of the 11 preceding quarters. Also, people are now buying bigger and better TVs and speakers to enjoy movies at home. The gaming industry is given a boost too and Nintendo Switch sold out in the U.S. All these are  signs of what is to come next. 

Construction and New Home Sales

Most of the Covid-19 cases in Singapore were among the foreign workers working in the construction sector.

The Singapore government has pledged to improve the living conditions for these foreign workers. This would increase the construction cost. This cost would eventually be passed on to the buyers.

We have also established that homes have now become the centerstage of the work-life integration equation. Current renters may decide to buy so that they have more control to design the space to complement their lifestyle. The younger generation who have stayed home with parents during this entire circuit breaker period may decide that they need their own space and enter the rental market. 

All in all, as long as the economy hums along and people are holding on to their jobs, the housing market will show no signs of abating. New homes may even end up more expensive given the increased demand and the rise in construction cost. 

Transport and Cars

The public transport network will be alleviated with less workers rushing to work during peak hours. With the continued push to telecommuting for workers who are able to work remotely, I believe that trains and buses will not see the same passenger traffic as before. 

This would work out well since some safe distancing measures are likely to continue. Our public transport capacity would no longer be expanded to handle more passengers but to create buffer zones and capacity for safe distancing. This means that public transport fees would have to go higher in order to be sustainable.

Those with higher income levels would take more taxis / private hire rides or buy their own cars. They may feel that the costs are justified as they can avoid mingling with the crowds in buses and trains.

Education and Learning

Children of school going age all over the country are now very familiar with the concept of home-based learning (HBL) as schools are shuttered during the Circuit Breaker period. I do not believe this is the most effective way for young kids to learn as the social interaction required for many forms of learning to happen cannot be replicated online. HBL is a stop gap measure and in such times, it serves to complement the school environment. We will eventually revert to traditional schooling, albeit with more distancing measures. 

However, tertiary education and personal development courses would change dramatically. These programmes focus more on content and can be delivered online without degradation. Now you can earn degrees via distance learning and many reputable universities are offering certificates through Massive Open Online Course (MOOC) providers such as Coursera and Edx. Tertiary education would be modularised and accreditation can be digitally verified. This would reduce the need for attending physical classes on university campuses and would be much more affordable than the sky-high tuition fees in the U.S.

Dr Wealth is in the personal development business and we found that our courses can be conducted online effectively. We have customers who prefer webinars over physical seminars. Masterclass has also taken the market by storm and their valuation has doubled since 2 years ago. Udemy has been offering many low-cost online programmes for learners around the world.

E-commerce and Malls

Most parts of the malls remained shut during the Circuit Breaker period and that has forced more people to patronise e-commerce platforms. The e-commerce trend has already been established prior to Covid-19. The worldwide lockdowns just accelerated the adoption.

Retail mall tenants have faced the threat of e-commerce over the years but I believe malls are here to stay. The only thing that will change would be the tenant mix in the malls. I believe malls would become experiential instead of merely shopping. Malls would mainly be made up of F&B outlets, supermarkets and services such as hairdressing and massages rather than bookstores, fashion and departmental stores. Essentially they are experiences that would be hard to replace digitally.

There will be increasing adoption of the Online-to-Offline (O2O) operating model whereby shops become avenues for shoppers to experience the goods but purchases are made online. Think of malls operating like a collection of showrooms. People will still prefer to try on items such as shoes and clothes before buying them. The O2O concept works well in this aspect. This provides opportunities for brands with strong online presence to enhance their touch points with customers. Brands who are mainly offline would suffer in this new environment.

Movies and Cinemas

Cinemas are crucial nodes for distributing movies to the masses. However, several movies like James Bond’s No Time To Die and Marvel’s Black Widow have postponed their releases as cinemas have remained close.

Netflix has started to commission movies, TV series and documentaries to have exclusive distribution on their platform. Disney also launched Disney+ to distribute their own productions. Apple and Amazon have also joined the streaming war.

Streaming services started way before Covid-19 but the lockdowns have accelerated its adoption while cinemas stay closed.

I believe cinemas will be here to stay too, just that their distribution power would be diminished. Wanda Film is on track to open 50-70 new cinemas in China. With safe distancing, cinemas will become more premium in the future. Since seats should no longer be placed close together, the Gold Class type of reclinable seats would become more common. Masses would stream movies at home while catching them at cinemas would become a luxurious activity.

Conclusion

I remembered how the Health Promotion Board (HPB) tried to get Singaporeans to exercise more by introducing the National Step Challenge with monetary incentives. The ActiveSG was also launched to give Singaporeans free credits to use sports facilities all around Singapore. I must confess I probably only used it twice. Out of the $100 credit assigned to me, I have more than $90 of it remaining. 

The Government’s efforts are well thought out and highly commendable. However, despite all the effort, these initiatives were only a fraction as effective as Pokemon Go in getting Singaporeans off their butts. I remembered parks filled to the brim during the peak of the game as people had to walk around in search of the elusive catch. 

It is hard to change people’s behaviour, even with top-down government policies and incentives. Structure drives behaviour. For habits to change on a massive scale, we first have to shape the structure and then allow the structure to shape us. 

Covid-19 has changed the structure of society. It is a sudden seismic shock that has led to radical changes in how we work, consume and live. 

In this article, we have gone through several industries and aspects of our lives, conducting thought experiments to identify the changes.

Some of the winners are companies dealing in furniture, home appliances, video streaming, productivity softwares and cloud; while some of the losers are those in travel, public transport, cinemas, universities, and construction.

Whichever way you see it, for better or worse, life would never be the same again. Welcome to the new normal.

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