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Market watch

BNP Market view on Consumer Industries

Issue date: 2020-09-29

BY BNP Paribas Asset Management 

The rise of the millennials, digital consumption and shifting demographics are among the big trends reshaping the consumer sector. How are they being affected by the 2020 pandemic? We will talk about the impact of the pandemic on consumer trends and themes.

What is the effect of the pandemic on consumer trends?

The COVID-19 pandemic is profoundly affecting the global economy and consumer markets. It is accelerating many of the existing trends in the consumer sector.

Since the pandemic began, we have seen, with the exception of e-commerce, underperformance of stocks in the retail, restaurants and leisure sectors relative to consumer staples (i.e. consumer essentials, cleaning/disinfectant products, basic foodstuffs). This of course reflects the impact of the lockdown in many regions of the US.

With consumers not going into shops, not dining out in restaurants or travelling, spending has shifted online. In addition, the stimulus checks distributed to US citizens by the government in mid-April boosted consumer spending. Companies are telling us that the trends in May show an improvement over April.

When we look at the combined numbers for April and May, we see that e-commerce has grown by 60% relative to the same period in 2019. The pandemic has pulled forward e-commerce penetration by two years. Consumers are ordering online and having goods delivered. We think this is a permanent acceleration of the shift online. There will be no going back.

Which consumer themes do you favour in the phase from lockdown to reopening?

Our analysis suggests the declines in sales and traffic caused by lockdown are of the same order across the non-essential retail, restaurant, hotel and entertainment sectors. However, we expect significant divergence during the reopening phase.

From now on, for a company to be well positioned in this new social distancing world, it will have to offer the consumer a contactless, uncrowded shopping and leisure experience. Consumers are going to avoid crowds. They will be less inclined to book cruises, travel abroad or by air. Consumer spending will shift from these sectors into other areas.

In addition to e-commerce, we see several consumer trends as beneficiaries:

  • Companies offering digital games and streaming entertainment content did extremely well during lockdown, as did online publishers of games. We expect this trend to continue.
  • Health & wellness is a sector that did well during the pandemic. We expect it to be even stronger coming out of the lockdown. COVID-19 has reinforced the importance of being healthy with a good immune system. Providers of goods and services in mental health could also do well.
  • Sporting goods retailers have seen an increase in sales of equipment for golf, biking, fishing and home fitness.

Our strategy is to stay focused and diversify our holdings across our secular growth themes, namely:

  • E-commerce
  • Health & wellness
  • Digital games/streaming of films/social
  • Bare necessities
  • Chinese millennials
  • Experiences over things.

What about longer-term consumer trends and themes?

Companies must go the extra mile to deliver products, services and experiences that are entirely relevant to the consumer, while at the same time being good corporate citizens. We believe environmental, social and governance factors (ESG) will be even more important from now on.

Today, technology is clearly the primary accelerator for consumer companies seeking to develop their relevance and scale. One trend to watch out for is the ability to blend both physical and digital experiences in personalised solutions.

Here are the principal areas we see benefiting over the long term from technology:

Consumerisation of artificial intelligence (AI)

AI is ubiquitous and is undergoing vast improvement. For example, object detection, where a smart oven camera detects a frozen pizza, knows the exact time it needs to cook with no human interaction. Another theme is smart home tech: creating intelligent living spaces (that take care of us) for consumers who want to spend more time at home.

Digital streaming/content

Consumers will have even more choice. The range of content we currently watch will get even more granular. We expect further growth in consumer spending on streaming.

Cloud-based games

Historically, digital games have set the pace for innovation in the broader tech sectors. We expect this to continue. An example of this is the rapid rise of e-sport, which is already a USD 1 billion industry.

More generally, companies are focusing on the democratisation of gaming on the internet. That means it is not just about owning a console or a high-end PC, there will be a lot more options to access the games. By removing the need to own a PC or console to play the latest, most demanding blockbuster games, the medium as a whole could become more accessible.

Digital health

Digital health has become a lifestyle industry that includes areas such as sleep tech and baby monitoring. The pandemic is making us all focus more on health.

Advances in artificial intelligence and 5G are leading to a shift from symptoms-based to evidence-based telemedicine, where evidence-based medicine is the integration of the best research evidence with clinical expertise and patient values for the best possible patient management. In practice, it means integrating the individual clinical skills of the doctor with the best available clinical evidence from systematic research.

Disclaimer

This material has been prepared by and has been issued by BNP PARIBAS ASSET MANAGEMENT Asia Limited [BNPP AMA]. BNP PARIBAS ASSET MANAGEMENT Asia Limited - registered office at 17/F, Lincoln House, Taikoo Place, Quarry Bay, Hong Kong. It has not been reviewed by the Hong Kong Securities and Futures Commission. 

It is produced for information purposes only and does not constitute: 

  1. an offer to buy nor a solicitation to sell, nor shall it form the basis of or be relied upon in connection with any contract or commitment whatsoever or
  2. investment advice.

It does not have any regard to the specific investment objectives, financial situation or particular needs of any person. Investors should consult their own professional advisors in respect of legal, accounting, domicile and tax advice prior to investing in the fund(s), and in the event that he chooses not to seek advice from professional advisors, he should make an independent determination of the suitability and consequences of an investment. 

Investors considering subscribing to the fund(s) should read carefully the most recent prospectus, offering document including the risk factors and consult the fund(s’) most recent financial reports before investing, as available from BNPP AMA or their authorised distributors. Investments involve risks. Investments in emerging markets involve above-average risk. Given the economic and market risks, there can be no assurance that the fund(s) will achieve its/their investment objectives. Investments in the fund are not deposits or other obligations of, or guaranteed, or insured by BNPP AMS or its authorised distributors or their affiliates and are subject to investment risks, including the possible loss of principal amount invested. Returns may be affected by, amongst other things, investment strategies or objectives of the fund and material market and economic conditions, including interest rates, market terms and general market conditions. Past performance of the fund(s) or the managers, and any economic and market trends or forecast, are not necessarily indicative of the future or likely performance of the fund(s) or the manager and the value of the investments in fund(s) may go down as well as up. Investors may not get back the amount they originally invested. Funds which are invested in emerging markets, smaller companies and derivative instruments may also involve a higher degree of risk and are usually more sensitive to price movements. Views and opinions included in this document constitute the judgment of BNPP AMA and its their affiliates at the time specified and may be subject to change without notice. BNPP AMA are not obliged to update or alter the information or opinions contained within this material.



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