Did we just kill retail shopping as we know it? 🔪️🛒️😫️
Issue 033 - WTF is going on with the Economy?!
Photo by Annie Spratt on Unsplash
Hey, and welcome to issue #33 of WTF is going on with the Economy?! - Abroaden's weekly economic insights newsletters for awesome people living abroad like yourself.
What we're watching/reading:
Vaccine approval in the EU.
Since publishing last week, a few countries approved and started vaccinating their population. Of note: none of those countries are in the European Union. The reason? The EU process for bringing a new drug to market is more complicated than in many other places. As it stands, approval for the Pfizer/BionNTech vaccine in Brussels is slated for the 29th of December.
However, leaders across the bloc are putting pressure to accelerate the process. Aside from the health benefits, the faster the vaccines roll out, the sooner the Economy can come back to life.
There will most likely be some economic pain ahead.
Still, it's probably better to go ahead and get it over with than draw out the process. At the same time, other countries return to normal sooner.
Asset managers going green with their green
Late last week, 30 financial asset managers created the Net Zero Asset Managers initiative. Their goal? Use the 9trillion dollars worth of assets they manage to push the companies they invest in to reach net-zero carbon emissions by 2050.
We've written about green investing a couple of times. ESG and SRI are one of the fastest-growing trends in the investment world. With this colossal push from names like UBS and AXA, will the trend accelerate? There's talk of green being the new normal. This initiation could make that become a reality.
Airbnb goes public
Everyone's favorite vacation rental platform/political whipping dog AirBNB went public last week. In short, going public means that the company offered its shares to investors on public stock exchanges at what's known as an initial public offering (IPO). Their IPO is impressive for two points.
First, Airbnb tried to go public back in February. At the time, the market was still going strong (little did anyone know what was right around the corner).
With the company reporting heavy losses in the lead-up to their offering, they decided to put the IPO on the backburner.
Ten months later, not only did they get to the markets, but they also came out as one of the top-ten IPOs for the year. That's impressive, to say the least, and is very telling about how much things have changed over 2020.
Second, short-term vacation rentals were among the most disruptive forces in the tourism industry in the past decade. By going public, Airbnb at least announced that this niche is here to stay. In turn, policymakers could finally find a way to reconcile the demand for private holiday rentals while addressing some of their negative social impacts.
The race to (sub) zero
The cost for governments around the world continues to drop. Just yesterday, the rate Spain pays to borrow money for a decade hit the low, low number of....zero. That's right. Spain can borrow for free right now. The Iberian country isn't the only one benefitting from this race to the bottom. So what does that mean? For starters, governments could either refinance their existing debt or borrow more to aid their economies.
More broadly, low rates are alarming for many investors -- particularly pension plans -- who depend on higher interest payments for income. Government debt forms the base of most portfolios and helps determine lending rates across the economy. This trend will reshape finance for the foreseeable future.
A Bloomberg Opinion Piece on FATCA
If you're not an American abroad, you probably don't know what FATCA is, but if you would ask one of us, we'd tell you how it's made our expat lives a royal pain in the ____. In short, US tax law makes it incredibly difficult for Americans abroad to invest (although there are some people working to fix that!).
Andreas Kluth wrote in Bloomberg that incoming treasury secretary Janet Yellen could quickly fix these problems. Sure, it's a longshot, but the fact that expats get recognition in the financial news is a huge step forward.
Before thinking that this piece is an "American only" issue, it's important to know that since 2015, global banks have spent 50 billion dollars to become compliant with FATCA. Those costs inevitably fall on all of us with a bank account. Finger's crossed, fellow Americans abroad!
HBR on being an expat
A study published in Harvard Business Review found that expats have a clearer sense of self.
In short, because we strip ourselves of our nationality and other commonality to enter the unknown, we become more self-aware. All of the authors lived abroad at one point, compelling them to conduct their study.
Agree/disagree/thoughts? I'm pretty sure there's a comments section if you open the article in the browser. It's a writing faux-pas to comment gratuitously on your work, so I avoid it.
There are plenty of other ways we writers can stroke our egos, such as publishing a newsletter.
The long(er) read - The hard questions for retail commerce.
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.
Right.
As you've 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 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 retail?
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?
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 my ability to buy peanut butter.