Outrun Change

We need to learn quickly to keep up with the massive change around us so we don't get run over. We need to outrun change.

Some wild guesses on the near-term impact of the pandemic.

Lots of people are starting to make guesses on what the impact will be from the pandemic on different industries over the next few years. No guess is better than another, so here is some speculation for your consideration.

The longer the economy of major states stay closed by deliberate choice of multiple governors the worse the effect is going to be. At some point there will be a disproportionately compounding effect with every extra week.

Discussion in this post brings together speculation for

  • higher education,
  • retail, and
  • airlines.

This discussion will be posted on several of my blogs.

Higher Education

A flood of articles are discussing damage to the higher education world. Eventually all colleges and universities will concede they have to refund something in the range of half a semester of room and board.

More institutions are getting pressure, if not getting served with litigation papers, to refund a portion of Spring 2020 tuition. Pressure is growing to discount tuition in the fall if classes are held online.

There is a growing probability there will be a severe impact over the next few years. One of many articles discussing the possibilities:

5/11/20 – New York Magazine/Intelligencer – The Coming Disruption/Scott Galloway predicts a handful of elite cyborg universities will soon monopolize higher education – One commentator perceives there has been a substantial drop in the value, price, and product of higher education.

The objective value of a college degree when your time is spent staring at a computer screen is far lower than the on-campus experience. The socialization, been exposed to people not like yourself, and the growing experiences will have to happen someplace else. With so many college grads underusing their degree the value equation has changed. That issue was present before the pandemic and will only get worse.

The price students and their parents are willing to pay for staring at a screen 15 hours a week instead of being in class is far lower than the on-campus price. Paying $50,000 or more annual tuition will be no longer acceptable to many people.

The overall product is going to have a lower perceived quality.

What will be the impact? His guesses:

The tip top tier schools, which he calls the top-50, will develop some sort of a hybrid model with a little bit of time on campus and most of the time on-line. Those schools have a high-quality brand which will continue. They will increase enrollment radically by partnering with some of the tech giants to produce superior online material, which combined with their high-value brand will draw many students, dominating the market.

Mid-level schools will survive by dodging some sort of the same model. Third tier schools will flounder and large portions will fail. At that level why would one want to pay $20,000 tuition for online classes?

Author perceives the full-blown, full-time, on-campus experience will be limited to the super rich who can afford to send their children on a four-year vacation (oops, that’s my characterization).

Bottom line of his forecast is concentration of enrollment at what are currently top-tier schools with failure of many other schools.

5/12/20 – Wall Street Journal – Coronavirus to Force California Public Universities Largely Online for Fall – First hints of the next stage of the industry can be perceived in the article.

The California State University system with 23 campuses and about 480,000 students announced that essentially all fall classes will be online.

The University of California system may have its 10 campuses open in the fall in some sort of a hybrid model but is making contingency plans for predominantly online classes.

Retail

The retail sector has been devastated by closing all stores for something in the range of 60 days already. There is no end in sight in many states. By the way, who is going to buy clothes for delivery at curb side?

5/14/20 – Wall Street Journal – Coronavirus Finishes the Retail Reckoning That Amazon Started – The pandemic has accelerated the shift to online shopping. One estimate predicts there will be around 100,000 stores shuttered in the next five years which would be three times the number that closed because of the Great Recession.

Another analyst estimates there is a 50% probability that there will be 19 defaults by major retailers. For contrast there were five who defaulted back in the Great Recession. Not exactly sure how to interpret that “50% probability”, but the point is there’s going to be a lot more retailers fail in the next couple years than back in the 2008/2009/2010 timeframe.

Ripple effect will be on the shopping malls. There will be lots of boarded up storefronts. Empty anchors translates into collapsed sales for the specialty shops. A few or many of the shopping malls may fail.

5/15/20 – CNN Business – JCPenney files for bankruptcy – The filing was expected, having been widely discussed for a while.

They are the fourth retailer to file bankruptcy because of the pandemic. They join J.Crew on 5/4, Neiman Marcus on 5/7, and Stage Stores on 5/10.

Only Stage Stores expects to liquidate; the other three plan to work through bankruptcy reorganization.

Article says April saw a 47% drop in sales at department stores and an 89% drop in clothing store sales. I can’t see May being an improvement.

Airlines

Previous posts discussing damage to the airline industry

Now the CEO of Boeing is wondering out loud whether all four of the major US airlines will survive.

5/14/20 – Simple Line – Airlines Unhappy With Boeing CEO’s Carrier Failure Prediction – During an interview with NBC News, the CEO mentioned it is “most likely” that one of the major carriers will have to shut down. It appears his concern is based on a second wave in September; at least that’s the only comment that survived editing.

Stock market took his speculation into consideration with prices dropping the next day for all four airlines. Stock prices dropped again the following day.

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