After the sales

The warehouses are full, shops are desperate to get rid of surplus stock, and customers are eager to make the most of the inevitable sales to refresh wardrobes and indulge in some much missed retail therapy. The sales starting now will be the best and longest and deepest sales ever. Shops will all have to offer deep discounts because everyone else will too, and there is only so much space in wardrobes. Inevitably, much of the stock will not be sold, however deep the discounts. Many people will still be hiding in their homes long after lockdown is lifted, only venturing out when they have to. Social distancing in shops will make them less appealing, scarier, and deter some potential customers. More importantly, although most people have kept their incomes and some have even managed to save and pay off debts, many others have lost their jobs, lost their savings, lost their spending power.

The result is all to obvious. Even if lockdown were lifted tomorrow, greatly reduced revenue and deep discounting will barely cover basic costs for many shops, and won’t for others, so there will be a long list of retail deaths to follow those we’ve already seen. A few healthy retailers will be able to buy weaker competitors and move into better stores, making the most of greatly reduced rents. With fewer retailers occupying more of the market, choice will soon dry up. They will have to cut costs too, and even after companies have been bought and merged, vast numbers of staff will be laid off, many shops will close, and with few ready to snap them up, high streets will soon look very sparse indeed. Fewer shops mean less temptation into town, less foot traffic, fewer people buying coffees and already frail high streets will shorten. Boarded-up shops at the end of high streets may soon be converted to accommodation.

It will be a very long and slow recovery from there to get back to anything like we saw before lockdown. It is not at all obvious why there would be a ‘V shaped recovery’. A very slow, weak recovery is more likely.

Online will do better. Many people will still be afraid or unwilling to go into town and put up with bleak social distancing, and no changing rooms. So lots of customers will carry on shopping online, and the retailers who have survived and upgraded their online presence will keep more of the market. But how healthy will that market be? People will still want new things, but social lives will not return to normal right away, with clubbing and eating out reduced, and lots of people will continue to work from home, so won’t need the same quantity of office outfits, especially since there is nobody to show off to. So although shopping online will keep much of the market gains it has made, the size of the pie will remain smaller. Retail will have shrunk, many retailers will have vanished, and there will be less choice. Warehouse-based automation will require far fewer staff, and many of the jobs lost will never return. With less competition, and costs of investments in infrastructure and tools to do online needing to be recouped, prices will soon start to rise.

The future of retail seems likely to be short term sales to dump old stock and get some cash flow, followed by rapid shrinkage, frantic retailer M&A activity, high street shrinkage, and many end-of-street properties switching from retail to accommodation. In the years following, as people gradually return to normal life, new retailers will gradually spring up, and a very slow recovery of the high street might occur, or it may well be that new business in the high street will only be enough to offset ongoing transfer to online.

It’s worth noting that in parallel to these changes, technology will continue to develop. Automated delivery will accelerate. Rapid custom manufacturing will reduce in cost, and if prices are increasing elsewhere, will become more competitive. As customers start expecting clothes to be made the their precise measurements and customisation, the relationship between customer and manufacturer may well be simplified, with retailers falling in importance. If so, the long term for retail looks even bleaker.

Retail, is just one industry. We should expect major changes in every industry as a consequence of lockdown. The world will not return to how it was before. Recovery will be slow, and the final destination will be quite different.

The future of the car industry

I’ve blogged and lectured many times now on the future of cars, public transport, trains, and I’ve retained my view that private cars and public transport (taxis, buses and trains, apart from very high density systems like London’s Underground) will eventually be replaced by fleets of driverless pods or self-driving cars (most probably the pods in city areas and some self-driving cars for non-urban areas). It can’t happen overnight of course, and there are various routes to getting there, but now that we know Tesla is setting up a big factory in Germany, the fog has lifted a little on the near and mid-term future.

Tesla will make electric cars. They have always been the future, but efforts and laws to reduce CO2 emissions are significantly expediting the trend. For the purposes of analyzing the future of the industry, there are really three distinct parts to consider. Electric vehicles can be considered to be a chassis, that can be adapted and re-used across a wide range of vehicles, a cabin, with its more individual appeals and decor, physical comforts and luxuries, and all the electronics, intelligence, sensors, displays, comms, entertainment.

With expertise in all camps, Tesla can flourish, but its much greater global expertise in the battery industry puts it in pole position to make a few standard electric chassis models that can be marketed to other manufacturers. The existence of those standard chassis allows new small manufacturers to spring up to offer a wide range of vehicles customized for every niche. These manufacturers don’t need the range of expertise of the conventional car industry, with many decades of expertise making relatively dumb vehicles with combustion engines. They will only have to learn the skills of making the comfortable cabins to sit on those chassis. (Don’t you hate that word too, with no proper plural!)

The car industry is therefore finding that much of the value of its historic core skills is quickly evaporating while having to compete on fairly equal terms in a new market using new technology with new manufacturers.

An electric chassis can include the motors to drive each wheel, and could also be easily adapted if and when new energy delivery systems using inductive pickups from the road surface move into the market (already successfully demonstrated in buses), and if and when lithium batteries are substituted by super-capacitors. So companies like Tesla can carry on making their own high-spec electric cars/vans/lorries but also flourish in a parallel market selling chassis with built-in drives to other companies who just need to put a decent cabin on top. It’s good strategy to see competitors as a potential market. Co-opetition works too.

This could be devastating to most of the big car manufacturers. Where will their market differential lie? Basic everyday markets could use the standardized chassis. How could they differentiate a high performance car when Tesla already offer ones that go 0-60 in under 3 seconds? The various electronics and AI systems will not compete only with Tesla but with all the big IT companies who also see roles in these markets: Apple, Sony, Google already but likely Samsung, LG, Microsoft and Amazon following soon.

It is possible that some existing car manufacturers will adapt just fine. They’ve known for many years that this future was coming and those with good strategies will cope. It is very likely though that some won’t cope and that very many jobs will be lost from the existing vehicle manufacturing industry, already bleeding jobs thanks to automation. It’s certainly not an industry I’d want to invest in for a decade or so until the weaker players have been removed from the field.

The main uncertainty that remains is whether the new industry goes the self-driving vehicle route, with lots of expensive sensors and IT in every vehicle, or the dumb pod/smart infrastructure route, with cheap cabins and simple chassis powered and navigated by the infrastructure. The latter could be much cheaper in urban areas, while the former would be better outside towns. My guess is that in the far future, we’ll have both, with self-driving vehicles outside urban areas, and pod systems inside urban areas (self-driving vehicles can easily be made downwards compatible so that they can behave like pods when in town).

The future of land value

I don’t do investment advice much, and I am NOT an investment adviser of any kind, just a futurist doing some simple reasoning.

World population is around 7.7Bn.

It will increase, level off, then decline, then grow again.

Any projections you see are just educated guesswork. 9.8Bn figure is the UN global population estimate for 2050, and I won’t argue with that, it seems as good a guess as any. Everyone then expects it to level off and decline, as people have fewer kids. I’m not so sure. Read my blog five years ago that suggested it might grow again in the late century, perhaps reaching as high as 15Bn:

https://timeguide.wordpress.com/2014/02/05/will-population-grow-again-after-2050-to-15bn/

I only say might, because there are pressures in both directions and it is too hard to be sure in a far future society which ones will be stronger and by how much. I’m just challenging the standard view that it will decline into the far future, and if I had to place a bet, it would be on resumed growth.

Population is one large influence on demand for land and ‘real estate’.

Another is population distribution. Today, all around the world, people are moving from the countryside to cities. I argue that urbanization will soon peak, and then start to reverse:

https://timeguide.wordpress.com/2018/06/13/will-urbanization-continue-or-will-we-soon-reach-peak-city/

De-urbanization will largely be enabled by high technology and its impacts on work and social life. It will be caused by increasing wealth, coupled to the normal desire to live happier lives. Wealth is increasing quickly, varying place to place and year to year. It is reasonable, given positive feedback effects from AI and automation, to assume average real growth of 2%, including occasional recessions and booms. By 2100, that means global wealth will be 5 times today’s. Leaving aside the lack of understanding of exponential growth by teachers indoctrinating schoolkids to think of themselves as economic victims, taken advantage of by greedy Boomers, that means today’s and tomorrow’s kids will have one hell of a lot more money available to spend on property.

So, there will be more people, with more money, more able to live anywhere. Real estate prices will increase, but not uniformly.

Very many of them will choose to leave cities and with lots of money in the bank, will want somewhere really nice. A lovely beachfront property perhaps, or on a mountainside with a gorgeous view. Or even on a hill overlooking the city, or deep in a forest with a waterfall in the garden. Some might buy boring homes in boring estates surrounded by fields but it won’t be first choice very often. The high prices will go to large and pretty homes in pretty locations, as they do today, but with much higher differential, because supply and demand dictates that. We won’t build more mountains or valleys or coastline. Supply stays limited while demand and bank balances rockets, so prices will rocket too.

Other property won’t necessarily become cheaper, it just won’t become as expensive as fast. Many people will still like cities and choose to live there, do business there, socialize there. They also will be richer, and there may be a lot more of them if population does indeed grow again, but increasing congestion would just cause more de-urbanization. Prices may still rise, but the real money will be moving elsewhere.

Farmland will mostly stay as farmland. Farms are generally functional rather than pretty. Agricultural productivity will be double or triple what it is today, maybe even more. Some food will be made in factories or vertical farms, using tissue culturing or hydroponics, or using feed-stocks based on algae grown at sea, or insects, or fungi. The figures therefore suggest that demand for land to grow stuff will be lower than today, in spite of a larger population. Some will be converted to city, some to pretty villages, some given back to nature, to further increase the attractiveness of those ultra-expensive homes in the nice areas in the distance. Whichever way, that doesn’t suggest very rapid growth of value for most agricultural land, the obvious exception being where it happens to be in or next to a pretty area, in which case it will rocket in value.

As I said, all of this is educated guesswork. Don’t bet the farm on it until you’ve done your own analysis. But my guess is, city property will gain modest value, agricultural land will hold its value or even fall slightly, unless it is in a pretty location. Anywhere pretty will skyrocket in price, be it an existing property or a piece of land that can be built on and stay pretty.

As a final observation, you might argue that pretty isn’t everything. Surely some people will value being near to centers of power or major hubs too? Yes they will, but that is already factored into the urbanization era. That value is already banked. Then it follows the rules just like any other urban property.