This report is part of the “New normal, new opportunities” series, in which we examine secular trends in a post-COVID-19 world. The series will cover a range of themes that are emerging as a result of social distancing, the work-from-home imperative, health care developments, corporate implications, and broader societal change. We believe identifying these trends and understanding their investment implications will be critical to navigating the road ahead. Additional reports will be released over the following weeks.
The weight of COVID-19
It seems likely that people all over the world have cabin fever and are eager to get out and about. But for the most part, individuals remain homebound with prior shelter-in-place restrictions and social-distancing rules and guidelines to combat and contain COVID-19.
As winter passed by, puzzles, toilet paper, and sanitizer were flying off physical and virtual shelves, and cooking, baking, and food products were likely stockpiled at an unprecedented rate as well, as comfort food was likely craved in newfound relative isolation. This pantry stocking seems to have produced at least one broad consequence—extra food at home resulted in extra consumption. In a poll of 2,000 adults, Nutrisystem found that 76 percent of adults admit they have gained up to 16 pounds since the COVID-19 precautionary measures began. There seemed to be a double-whammy—it was winter and harder to get outside, and gyms were closed, many mandated by COVID-19 restrictions. Many have reopened, but the fear of germs has kept many consumers from renewing their memberships. On July 23, TD Ameritrade released the results of a survey of 2,009 adults ages 24 and older that found 59 percent don’t plan on renewing their gym membership once the pandemic is over. Of those surveyed, 56 percent said that the pandemic helped them discover cheaper ways to exercise and live healthier.
Although there are many exercise apps available on smartphones and streaming workouts on other screen devices, equipment usage at home has also grown in popularity. New companies are cropping up, and even athleisure company lululemon athletica inc. has become more serious about the trend, as the company completed the acquisition of the subscription-based in-home, interactive fitness company MIRROR on July 7. According to lululemon, 64 percent of its customers participated in digital workouts at home prior to the pandemic, while 75 percent did so during the pandemic, and 86 percent used at-home equipment, saying they intend to use it the same or more than they did prior to the COVID-19 outbreak. With a similar business model, Peloton Interactive, Inc. has amassed 886,100 connected fitness subscribers.
Nesting and COVID-19 gardens
Outside of working and working out, individuals appear to be focusing on both old and new hobbies, with many of these centered in and on the home.
The current interest in gardening is likely unprecedented, or at the very least, at a recent historical peak. Scotts Miracle-Gro Company recently reported results that showed the U.S. Consumer segment with a sales increase of 21 percent year over year in its fiscal Q3 (ended June 27) and 50 percent year-to-date. Management noted that “30 percent of edible gardening activity came from consumers who are either new to the category or returned after being away.” The CEO reminded investors that “what our category does for people’s emotional and physical well-being has never been more evident than it has been in 2020.” Reuters quoted the chairman of seed company W. Atlee Burpee & Co. as saying the company sold more seed this past March than at any time in its 144-year history. U.S. Census Bureau data shows building materials, gardening equipment, and supplies dealers enjoyed sales growth of 7.1 percent year over year from January through May 2020, while total retail and food services suffered a decline of 4.6 percent.
Other companies catering to do-it-yourself home projects, decorating, and repair and remodeling continue to deliver solid results, as many people are at home staring at their surroundings with an eye for improvement. The Home Depot, Inc. posted seven percent year over year sales growth in the most recent quarter, while Lowe’s Companies, Inc. delivered growth of approximately 11 percent.
Man’s (woman’s) best friends in high demand
With more time at home, many individuals have embraced pet ownership. The Wall Street Journal published an article on April 10 entitled “Coronavirus Panic Buying: Puppies” stating pet fostering demand is “through the roof.” The American Veterinary Medical Association estimates that over 48 million households own at least one dog, and 32 million own a cat, according to a 2017–2018 U.S. Pet Ownership & Demographics Sourcebook. Although that’s a warm and fuzzy topic, pet ownership and spending has been a growing category for years, and is fairly recession-resistant.
Total U.S. annual spending on pets
Billions of dollars
Source - RBC Capital Markets, Chewy S-1, Packaged Facts
The category grew during the last recession, when many spending categories declined. An annual filing from online pet retailer Chewy supports this resiliency, stating, “In 2010 alone, spending in the United States on entertainment fell 7.0 percent, food fell 3.8 percent, housing fell 2.0 percent and apparel and services fell 1.4 percent, according to the U.S. Bureau of Labor Statistics, while spending on pets rose 6.2 percent, according to the American Pet Products Association.” According to the S-1 Chewy filed with the SEC prior to going public, in 2017, the pet industry in the U.S. saw $70 billion in total dollars spent, and is projected to grow at a compound annual growth rate of 4.2 percent from 2017 to 2022. About 42 percent of spending is on pet food and treats, about 25 percent for veterinary costs, and the remainder on other categories such as grooming, boarding, and insurance (only two to three percent of U.S. pets are insured, according to animal health company Zoetis).
Sudden disruptions in our lives can lead to enduring changes. Although some parts of our lives that we have all been missing will inevitably return over time, we expect the changes discussed above could have an enduring time horizon going forward, even in a hopeful world with COVID-19 vaccines and treatments.
This article was originally published on August 18, 2020.