The Pandemic Pushes Businesses Online
Updated: Sep 3, 2020
The pandemic has changed the business world in numerous ways. Employees are working from home, consumers are shifting to e-commerce, and large companies with scale and cash are marching towards being even larger after the pandemic. Some of these trends are new, while others are simply being accelerated.
The move to an online world that favors less human to human interaction is one full of consequences. One consequence of the online interactions that now dominate our lives is the way companies are now allowing and encouraging their workers to work from home permanently. A large obstacle that prevented remote work from happening on a wider basis before the Covid-19 pandemic was the fear it would lead to less productivity. However, many companies have since found that their employees are just as productive as before and have green-lighted their employees to stay home permanently. One example of this shift is Facebook. Pre-pandemic, Facebook and other tech companies had built large campuses to attract employees. The areas around the offices often contained free cafeterias, dry-cleaning services, and other amenities to attract prospective employees and to keep them around the office. Facebook even offered cash bonuses to those who lived within 10 miles of its headquarters. The attraction of talent also led to some gentrification in places like Silicon Valley that experienced a huge influx of upper-middle class families and prospective tech employees. However, some of those same employees struggled to afford living near their companies and discussions about how to create affordable housing became a major issue around the headquarters of places like Google and Amazon.
Now that many of those tech employees have left the cities, housing prices are down as much as 7% in San Francisco and 15% in nearby Menlo Park. One catch that comes with all this is that Facebook will begin paying employees in accordance with the cost of living where they choose to move. Employees won’t be able to make a San Francisco salary as they move away to Sacramento. This could slow down the exodus of those who wish to leave Silicon Valley, though perhaps some will accept Facebook’s justification for the move. It could also allow smaller tech companies to begin competing with larger ones, especially if they decide they will continue to recruit and pay people at the same rates no matter where an employee might live. This could also lead to a diversification of the tech industry and who gets hired. If moving to Silicon Valley is no longer a prerequisite to working at a big tech firm, prospective employees could be hired and recruited from all around the world.
This shift could also affect the way offices and physical spaces are imagined. If employees continue to move out of the cities, companies will be left with space that could be largely unused. For companies with large campuses, this could actually lead to the saving of some money. Rent and maintenance often make real estate one of the most expensive parts of running a business, outside of compensation. According to a study done by the McKinsey consulting firm, real estate can account for anywhere from 10-20% of costs. But if companies can efficiently redesign their spaces to house a smaller population, then they might come out of the pandemic with some savings.
Another set of physical locations that could change fundamentally or even disappear are retail stores. Analysts are also projecting a record year for permanent retail store closures in 2020. America already has had an overabundance of retail space compared to the rest of the world, boasting 23.5 feet of retail space per person. This was seven feet more than second place Canada, and about five times more than most countries in Europe. Companies that do survive the pandemic will have to think of new ways to get consumers in the door, perhaps with special deals on in-store purchases or an emphasis on the in-store experience.
However, many smaller, independent stores won’t survive the pandemic. This will probably lead to the spread of chains post-pandemic which have the cash on hand to survive tough times and relative lack of income for however long people are told to avoid stores. Larger companies also have better access to resources such as capital and loans, making it easier for them to play the long game. This could lead to more Americans working for the same companies, with the biggest companies getting bigger and the smallest ones disappearing.
The impact of the pandemic forcing the closure of many in-person spots could accelerate the shift towards online shopping, a trend that was already growing previous to the COVID-19 pandemic. E-commerce already accounted for 13% of goods bought online in 2019, and now more and more consumers are turning towards apps like Instacart to deliver groceries. Amazon has also seen a surge in orders, and their overall revenue shot up 26% in the first quarter of 2020. CFO Brian Olsavksy pointed out that most of their new orders came on low-margin goods like food, cleaning supplies, and medicine.
This shift towards online shopping could especially benefit larger companies such as Amazon and Walmart, who have the scale ready to deal with a sudden surge in online shopping. Amazon especially is in a unique position to move forward in a pandemic ridden world, given how much cash it can invest in testing its employees and setting up labs and providing personal protective equipment. Amazon has already put four billion dollars into setting up testing facilities and could conceivably set up the first Covid-19 free supply chain due to their abundance of resources. They have also invested in Zoox, a company which makes self-driving cars which could be used for delivery services or driverless ride-sharing.
The Covid-19 pandemic could also lead to a re-imagining of how gig economy workers are treated. While the issue of how to treat gig economy workers was already shaping up to be a battle between progressives and companies, the struggle to keep Uber drivers and delivery drivers working has brought that fight to the forefront. So far, gig economy workers have been included in relief packages, including the CARES Act that took effect in late March.
In California, bills have been passed in an attempt to protect gig workers. In September of last year, Democrats in California passed Assembly Bill 5. This bill instructs companies such as Lyft and others to classify their workers as full-time employees, meaning they can take sick time off and be eligible for workers compensation and other labor protections. In passing the bill, Democrats argued that most Uber drivers and similar workers are hardly gig workers as most work full time and lack minimum wage guarantees and other basic protections. However, workers and others have argued that the law has functionally made it harder for them to get work as companies are more reluctant to bring them on board. This rings especially true of health workers who are often only needed seasonally.
This fight over how workers are classified is one of the ways in which the pandemic has brought new issues to the forefront. Other trends such as Amazon’s growth and the transformation and fall of retail stand as proof that the pandemic has shifted thinking of how we do business extremely quickly. However, issues like the shift to e-commerce are mostly left up to individual businesses to navigate. Other issues such as defining employees and what to do with unused retail space could be issues that shape the future of politics in major cities across the world. And if employees continue to shift out of the cities, how parties are aligned and interact with constituents might change. If companies can hire employees from anywhere, wealth could spread across the United States and globally, re-orienting traditionally liberal and conservative areas.
Another potential outcome is that companies such as Amazon and Walmart continue to grow at the expense of smaller businesses, forcing the United States and other governments of the world to confront the monopolization of the market that big businesses cultivate. State governments and the federal government could look to California and AB5 as an example of how to make businesses listen to and follow regulations. The only thing that needs to exist is the political will to tackle these challenges and face big businesses head on.