Anticipating fiscal reactions to the shifts in consumer behavior caused by the Covid-19 crisis isn’t easy. But careful observers can find plenty of indicators for how people live and spend money in the new normal.

It’s important to keep in mind many changes, despite the circumstances, aren’t from left field. Nathan Cockrell , co-director of global research at Lazard Asset Management characterizes what we’re seeing as a fast-forward of shifts that were already underway.

“On the offline-to-online transition, this looks like it has created a step change, but the direction of travel was already established,” he says. “The longer that Covid has gone on, the more likely it is that enforced changes in consumer habits become learned and persistent. I definitely subscribe to the idea that something’s changed that is somewhat irreversible.”

He uses the example of China’s consumption, which has largely recovered back to 2019 levels. There, online channels have increased penetration in one year to a level he says normally would have taken four or five.

“That kind of gives us a picture of what ‘normal’ might look like,” Cockrell says.

Denied choices, consumers have had to accept what they previously thought of as inferior alternatives, such as elearning or telehealth, creating for some businesses what Cockrell calls “an endowment of customer acquisition.”

He believes there’s stickiness to these changes, from slow-to-adopt groups like older consumers shifting online and from regional laggards—such as online grocery’s uptick in Japan, where it was previously a marginal activity.

“If the Japanese are changing their behaviors, then that tells me that something bigger’s occurred,” he says.

Here are four points Cockrell shared with Penta to help investors navigate the changing world of consumer behavior.

Seek Out Consumer-led Change

Looking at individual consumer-led changes can mask their significance; the totality of smaller consumer changes, like home consumption and changing traffic patterns, is meaningful.

Cockrell says distinguishing between necessity-driven choices and behaviors chosen by the customer makes a difference for investors.

“One is driven by innovation and the other can be met by developing products and services using established technologies or more third-party applications,” he says. “One you can clone and copy, and one is relatively unique.”

Of the two, investors should look more closely at consumer-led changes.

“In the long run, as far as channel shift is concerned, everyone will adapt to the new modes of consumption. So you can definitely be a leader or laggard in that transition.”

Beware the Inevitability of Competition

Some product markets look larger and more attractive post-pandemic. Financial markets are usually quick at  identifying those, but while “they get the directional answer right, they sometimes get the magnitude wrong,” he says.They also often get the resulting competitive intensity wrong as well.”

That’s why Cockrell encourages investors to consider the competitive advantages of companies. For instance, some apps and tools replacing face-to-face workplace communication seem to have relatively low technology barriers and are easy to replicate, meaning they lack ability to scale and continued steady profit and revenue growth can be unsustainable.

“I would recommend that investors look for good businesses that can earn their way into their valuations because they can win in their markets due to durable competitive advantage, not just those that have enjoyed stronger recent demand because of Covid.”

The distinction, Cockrell says, is that businesses with the in-house knowhow to compete digitally and communicate their product offerings in this realm will gain more market share as behaviour shifts solidify.

Pay Attention to Uneven Impacts

Direct and indirect consequences of Covid-19 have affected people across the socio-economic spectrum, but in very different ways.

“Lower-for-longer interest rates and strong government intervention in the private sector has generally made the rich richer,” Cockrell says. “But the direct consequence of Covid in terms of economic disruption and job losses has affected people who’ve lost their incomes, and who don’t have capital much more negatively.”

In the consumer sector, luxury businesses catering to wealthy consumers have a good outlook. For instance, Cockrell notes, there’s been much faster recovery in private jet activity compared to commercial flying, and new boat sales remain robust.

Conversely, value-driven retailers, such as discount department stores and dollar stores offering consumers better value in a period that they may be looking for it, also should be on investors’ radar.


Follow Appetites for Novelty and Change

“We are noticing interesting anecdotes of really radical experimentations in terms of consumer behavior,” Cockrell says.

Though not easy to measure, examples abound. For instance, Rolex recently introduced a line of traditional watches with vivid face colorings, and people are experimenting with cosmetics and beauty treatments like bright hair colors.

“It tells you that in a period in which people have kind of been living in stasis, that they’re looking for change,” he says. Companies that can innovate and have strong research and development platforms are well-positioned to benefit in this environment.

Additionally, at this stage, pandemic restrictions may drive people toward purchasing new, exotic, or desired products instead of an experience such as a luxury vacation. But Cockrell expects this substitution will largely reverse over time.

“Looking back into history, we saw a big impact on travel and leisure after 9/11 which normalized eventually, although at the time it was very hard to understand or quantify the threat that society faced.”

By Rob Csernyik, PENTA (Barron’s)